Enhancing the Role of Banking, Danamon Group Continues to Grow

Kapanlagi.com - It is not easy for the Indonesian people to face the difficult economic situation like the one we are in now. Moreover, based on BPS data on November 1, 2024, Indonesia recorded an inflation rate of 0.16% MoM in October 2024, after 5 months of deflation.

Nevertheless, Indonesia's inflation decreased to 1.7% YoY in October 2024, marking the lowest inflation rate since October 2021. In response to this, Treasury & Capital Market Head of Bank Danamon, Herman Savio, outlined the factors causing the sluggish economy and the banking efforts to stimulate economic growth. This was conveyed by Herman to Bisnis Indonesia. Below is a summary of the key points he presented.

1. Factors That Cause Indonesia's Economic Growth to Slow Down

In an interview with Bisnis Indonesia, Herman Savio revealed that one of the causes of rising inflation in Indonesia is due to higher international gold prices, not because of strong domestic demand. Among the components that contribute to economic growth, there are only three groups that are growing, namely gross fixed capital formation or investment, exports, and imports.

"Conversely, household consumption expenditure, expenditure of Non-Profit Institutions Serving Households (LNPRT), and government consumption expenditure have contracted. Specifically, household consumption expenditure, which has been the largest contributor to economic growth, has actually slowed down," he stated to Bisnis Indonesia.

According to Herman, this is reflected in the contribution of domestic consumption, which continues to decline to 2.55% until the third quarter of 2024, compared to its historical contribution of 2.62%. Furthermore, Herman revealed that there are several factors that limit domestic economic growth.

"First, the slowdown in domestic consumption is influenced by several factors, such as the slowdown in China's economy, which suppresses demand for industrial and commodity exports, as well as the impact of high global interest rates. The second factor is the decrease in the number of middle-class people who support the economy through shopping consumption, which has dropped from 57.83 million in 2019 to 27.58 million in 2024," he added.

Not stopping there, the reduction in the middle class is also influenced by inflation. Herman acknowledged that this has contributed to the rise in the prices of goods and services. On the other hand, wage increases are slower than the rise in the prices of goods and services, as well as the cost of living.

2. The Role of Banking in Boosting Economic Growth

Furthermore, to boost economic growth, Herman stated that banking plays a significant role. “Danamon Group has a local to global reach with holistic financial solutions that can be tailored to the needs of customers, as well as financial service institutions, such as financing companies. Moreover, with the adjustment of policies from the government and regulators, the space for banks to increase credit is quite open,” Herman told Bisnis Indonesia.

For your information, Danamon is supported by a global and local network with MUFG as the parent company and group of companies, including Adira Finance, Home Credit Indonesia, Mandala Finance, Zurich Asuransi Indonesia, and its strategic partners, Grab, Akulaku, and Manulife Indonesia, committed to continuously transforming as One Financial Group. Danamon as One Financial Group can offer local and global networks, as well as holistic financial solutions that meet the needs of both individuals and businesses.

On the other hand, Herman revealed that Bank Indonesia maintains the BI Rate at 6% and provides flexibility for micro, small, and medium enterprises (MSMEs) and the green economy through the provision of incentives. In addition, the government also provides incentives in the form of Value Added Tax (VAT) borne by the government (DTP) until the end of 2024. All these incentives are intended to increase public consumption.

“Banking can also take advantage of this to boost consumption financing, which in the last 5 years has grown at an average of 6%, far below the period of 2015-2019 which grew at an average of 10.25%. Herman continued that by 2025, Indonesia's economy is expected to grow by 5.11%, slightly higher than the 2024 projection of 5.05%. The decrease in interest rates and the recovery of the Chinese economy will also have a positive impact and support more solid growth,” he explained to Bisnis Indonesia.

Additionally, Herman also hopes that the demand for Indonesian export products and commodities will increase, thus driving domestic activity higher. This is also supported by inflation in 2025, which is expected to remain controlled at around 2.51%.

“In order for the role of banking to be more significant in enhancing the economy through increased consumer credit, banks can leverage key sectors, such as home loans, vehicle loans, and other household goods, by optimizing digital channels and their financial business groups,” he continued.

Herman added that banks could also target business sectors that have a relatively high risk profile but are potential for funding, such as plantations, agriculture, fisheries, and maritime. However, financing for these sectors needs to consider each bank's policies in credit distribution.

“With the support of the central bank and the ease from banks, I hope that people's purchasing power will increase and contribute positively to economic growth in Indonesia,” he concluded to Bisnis Indonesia.

(kly/tmi)