Fund Costs Still Expensive, Banking Naturalizes Profit Pressure

JAKARTA - The high cost of funds in the national banking industry has resulted in a decline in profits that occurred in a number of middle-class banks. The high cost of funds or cost of funds on the one hand and the low growth of interest income on the other has been the culprit of the pressure on the profits of a number of banks.

This is reflected in the performance of a number of middle-end banks until the first nine months of 2024. For example, banks that are still perched in the 10th position in terms of assets, namely PT Bank Danamon Indonesia Tbk, recorded a decrease in net profit of 8.96 percent on an annual basis (year-on-year) to Rp2.33 trillion at the end of September 2024.

If viewed from interest income, Danamon still posted growth of 18.48 percent as of the third quarter of 2024. However, the interest expense increased higher, namely 51.11 percent yoy, so that net interest income only grew by 4.89 percent.

The same thing happened to PT Bank Maybank Indonesia Tbk, which is ranked 14th largest in terms of assets. In the third quarter of 2024, Maybank Indonesia recorded a 55.2 percent decrease in net profit to IDR 558 billion.

The bank categorized as KBMI III was still able to record interest income growth of 10.2 percent to Rp9.65 trillion as of the end of September 2024. However, the interest expense rose by 29.1 percent to Rp4.32 trillion, thus reducing net interest income which decreased by 1.5 percent.

A number of observers have mentioned factors that cause profit shrinkage in a number of banks in Indonesia. Apart from the fact that the benchmark interest rate has not decreased much this year, some external pressures such as heating geopolitical conditions, global inflation, and the weakening rupiah exchange rate continue to affect the performance of banking profits.

In the midst of these conditions, banks still have to fight for cheap funds to be able to improve the cost structure of their funds. The problem is, the growth of third party funds (DPK) nationally is also difficult to catch up with double-digit credit growth.

Based on data from the Financial Services Authority (OJK), the growth of the national banking industry DPK as of September 2024 was recorded at 7.04 percent yoy to Rp8,720 trillion. Meanwhile, bank lending increased 10.85 percent yoy to Rp7,579 trillion in the same period.

According to OJK Banking Supervision Chief Executive Dian Ediana Rae, this condition occurs because the business world is actually moving.

"DPK's lower growth compared to credit reflects higher business expansion needs than the need to store funds that are trying to reflect the normalization of the business world," he said recently.

In general, top and middle banks are still optimistic that they will be able to record DPK growth above the industry average. For example, PT Bank Tabungan Negara (Persero) Tbk (BTN) whose DPK growth reached 16.4 percent on an annual basis to Rp373.8 trillion until August 2024. President Director of BTN Nixon LP Napitupulu said that BTN's DPK growth still has the potential to grow above industry until the end of the year.

BTN is also a bank that continues to improve its funding structure so that it can further increase low-cost funds and improve its margin. Moreover, said Nixon, BTN is a bank that is different from banks in general, because the task carried out by BTN is as a subsidized mortgage distribution bank whose interest rates are pegged to a maximum of 5 percent for the Housing Financing Liquidity Facility (FLPP) program.

With the majority of the portfolio being distributed to subsdi mortgages, said Nixon, BTN could not immediately increase lending rates to compensate for the increase in funds.

"BTN is indeed a different bank, in the sense that the BTN NIM will not reach above 4 percent or even 5 percent because the FLPP interest rate is set at a maximum of 5 percent. With the interest rate that has been limited, the BTN NIM will be around 3.2-3.5 percent," Nixon said in his presentation during a Hearing Meeting with Commission VI of the House of Representatives in Jakarta, Wednesday, November 13.

Nevertheless, Nixon said, BTN did not remain silent to increase the acquisition of low-cost funds. One of the steps taken is to carry out digital transformation through the development of the BTN Mobile application, which within one year is able to attract two million users with a transaction amount of up to three million per day.

The development in the digital world is extraordinary and BTN has never experienced anything like this before. What distinguishes us from other state-owned banks is that BTN Mobile focuses on mortgage content. What is even more interesting, today many house purchases have been made online. Last year, online house purchase transactions amounted to trillions of rupiah, "said Nixon.