Micro Loans Drives Income of Banks

Micro, small and medium enterprise (MSME) loan portfolio has a significant income contribution to banks’ business, according to IFT Research Department. Large-scale banks add their outlets and networks in remote areas to maintain the growth.

The MSME loan portfolio of PT Bank Mandiri Tbk (BMRI) was quite stable at 13-15 percent whose contribution in the first semester of 2011 grew 100 basis points year-on-year (YOY). The loan portfolio grew higher than other loans.

Small and medium enterprise loan portfolio increased 34 percent to Rp 25 trillion while micro loan portfolio rose 42 percent to Rp 8.5 trillion YOY. The rapid growth prompted a significant increase in the loan portfolio and also offered higher yields.

PT Bank Danamon Tbk (BDMN) was still consistent to maintain the growth and contribution of small and medium enterprise loan portfolio as well as micro loan through ‘Danamon Simpan Pinjam’ (DSP). Their contribution was stable above 40 percent. Small and medium enterprise loan portfolio increased 29 percent to Rp 23.04 trillion. DSP grew 20 percent to Rp 16.04 trillion YOY. The bank will still focus on both segments in the future.

PT Bank Rakyat Indonesia Tbk (BBRI) also had a significant growth in MSME loan portfolio as their contribution was also stable at 60 percent

Through the products, “Kredit Usaha Pedesaan” (KUPEDES) and “Kredit Usaha Rakyat” (KUR), the bank’s micro loan portfolio increased 35 percent YOY. KUPEDES rose 27.3 percent to Rp 74.88 trillion in the first semester of 2011 YOY, while KUR surged 182.3 percent to Rp 9.09 trillion with 1,787 debtors.

KUPEDES contributed 89 percent to the total small and medium enterprise loan portfolio. The bank therefore expanded the infrastructure of ‘Teras BRI’ for customers to access the bank’s loan. BRI targets an increase of 700 to 1,300 units.

Ahmad Baiquni, Finance Director of BRI, said that micro loan portfolio grew 35.39 percent to Rp 83.97 trillion in June 2011 from Rp 62.02 trillion YOY. “Our total loan portfolio only grew 17.49 percent with a 35 percent contribution from micro loan portfolio. The (micro loan) interest rate is high that prompts a rise in our net interest margin,” he said.

BRI will also lower its commercial and retail loan portion to 15 percent in the second half of 2011 from 22.8 percent in the first half, and medium enterprise loan below 15 percent, due to high non-performing loans (NPL).

Non-Performing Loans

IFT analysis revealed that MSME loan has quite high non-performing loans (NPL). The NPL was 4.59 percent as of June 2011 with small business loan as the highest at 6.17 percent amounting to Rp 9.63 trillion.

Handoyo Soebali, Director of Commercial Banking of PT Bank CIMB Niaga Tbk (BNGA), said that it is not easy to suppress NPL in the segment as the risk is quite high that banks set high interest rate.

Handoyo said that the bank can successfully reduce its NPL for micro loan to 0.5 percent by evaluating debtors’ business feasibility.

MSME loan contribution to the bank’s total loan was quite stable at 16-19 percent. Small and medium loan portfolio grew 20 percent to Rp 18.7 trillion YOY. Micro loan portfolio surged the highest at 534 percent to Rp 690 billion YOY because the bank has just ventured in the segment.

Perseroan relied on the product, “Mikro Laju” as its micro loan portfolio. There are 186 outlets as of June 2011 with target to reach 300 by year-end.