The decision by the Indonesian Central Bank (BI) to lower the interest rate on September 18, 2024 is projected to give positive impact on the national banking sector.
An analyst with STAR Asset Management, Frederick Daniel said this policy is able to increase market liquidity and encourage credit growth, which in turn will strengthen the performance of the banking industry in Indonesia.
Daniel said the BI interest rate decrease is expected to support the strengthening of the banking sector until early 2025.
“History shows that interest rate decreases are often followed by increases in the Composite Stock Price Index (IHSG), reflecting market optimism and increased investment activity,” Daniel said in his presentation at the Indonesia Stock Exchange building in Jakarta on Thursday, October 24, 2024.
With increasingly low credit costs, the banking sector is predicted to continue to increase the volume of credit distribution, encouraging more aggressive business expansion.
According to the latest data, credit distribution growth in the Indonesian banking industry reached 10.4 percent in September 2024, up from 8.7 percent in the same period the previous year.
This figure is in line with BI’s target of 10-12 percent in 2024. The interest rate cut is expected to be a positive catalyst that increases liquidity and accelerates credit growth in this sector until early 2025. Not only from a fundamental perspective, historical data over the past 10 years shows that investments made from September to February in the banking index, namely the Infobank15 Index, have on average provided a potential return of 13.1 percent.
This trend shows that this period consistently provides optimal results, especially when interest rates are low. The banking sector is one of the main beneficiaries of this trend, with increased liquidity and lower credit costs.
Daniel cited Analysis of Data Projections from the Bloomberg Context as of September 27, 2024, shows that the Infobank15 Index constituents have an average potential increase of 11.7 percent in the next 12 months, excluding dividends.
This potential is supported by strong banking sector fundamentals, with the four largest banks in Indonesia successfully recording achievements above target.
Factors such as low credit costs and solid asset quality further strengthen the appeal of the STAR Infobank15 Index Mutual Fund as an investment product that offers competitive returns.
With a supportive market climate, now is the right time for investors to consider strategic steps in strengthening their portfolios.
“The strengthening banking sector and lowering BI interest rates create great opportunities for medium to long-term investment in Indonesia,” Daniel concluded.
