Banking Lending Strategies amidst the DPK 2024 Slowdown

The growth of third-party funds (DPK) has slowed down in 2024, especially in current accounts. Even Bank Indonesia also noted that the growth of third party funds sloped to 7.5% yoy in July 2024 or lower when compared to June which was at 8.2% yoy.

With growth conditions like this, it will be quite influential on lending. Then, how do banks adjust their credit strategy? Check out the information below.

Tightening Liquidity:

The slowdown of DPK: The slowing growth of deposits may lead to a tightening of bank liquidity. If deposits do not grow optimally, banks may face difficulties in raising low-cost funds to support lending.

Reliance on Alternative Sources:

Banks may optimize funding from alternative sources, such as issuing securities and borrowing. However, this may increase costs and risks for the bank.

Liquidity Stability:

Despite the tightening, banking liquidity is still considered adequate. The ratio of liquid assets to third-party funds (AL/DPK) is still high, at around 25.56% in July 2024. However, if the trend of slowing deposits continues, then liquidity tightening is inevitable.

Bank Indonesia Policy:

Bank Indonesia (BI) has implemented the Kebijakan Insentif Likuiditas Makroprudensial (KLM) to support banking liquidity. This policy helps maintain financial system stability and ensure that banking liquidity remains adequate.

Credit and Liquidity Risk:

If loans continue to grow and deposits continue to slow down, liquidity tightening is inevitable. This may increase credit risk and affect banks' ability to lend effectively.

If banks do not adjust their strategies, there could be a significant impact on lending through various factors. What are these factors? 

Limited Funding Sources:

With the growth of deposits slowing down to 7.72% in July 2024, banks may experience difficulties in raising low-cost funds. DPK is one of the main sources of funding for banks to extend credit. If deposits do not grow optimally, banks' ability to lend to individuals and corporations will be hampered.

Credit Stability:

Although credit growth was maintained at 12.40% yoy, the slowdown in deposits suggests that such growth may not be sustainable if not matched by an increase in fund raising. Reliance on alternative funding source such as securities issuance may increase costs and risks.

Interest Rate Increase Risk:

If banks find it difficult to obtain cheap funding from deposits, they may increase interest rates to attract more deposits or look for other funding alternatives. This may have a negative impact on loan demand, as higher interest rates tend to discourage customers from borrowing.

Impact on Corporate Economy:

The slowdown in deposits may also affect the corporate sector which relies on bank loans for expansion and operations. If banks become more selective in lending due to limited funds, then overall economic growth could be hampered.