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Indonesian Highlights and Insights in News
Indonesian Highlights and Insights in News
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Banks Net Interest Margin To Slightly Grow Towards The End Of The Year
Tuesday, 26 Nov 2024
The reduction in the benchmark interest rate continues to have a limited impact on the profitability ratios of banks, despite the fact that the net interest margin (NIM) has recorded its highest growth since the beginning of 2024.
According to the Banking Statistics released by the Financial Services Authority (OJK), the banking NIM as of September 2024 remained stable at 4.60%, the same level achieved in August 2024. However, this figure is still lower compared to December 2023, which reached 4.81%.
A closer examination of the banking NIM throughout 2024 reveals fluctuations. In January, the NIM was recorded at 4.54%, followed by a decline to 4.49% in February. Subsequently, the NIM strengthened again in March, reaching 4.59%, before experiencing a slight decrease in April to 4.56% and remaining stable until May.
In June, the NIM began to show a strengthening trend at 4.57%, which continued into July at 4.59%, ultimately peaking in August and September at 4.60%.
It is important to note that the NIM represents the difference between the interest rates charged on loans by banks and the interest rates paid to third-party fund owners (DPK) in the form of deposits or loans from other parties.
A higher Net Interest Margin (NIM) indicates an increased potential for banking profits from the funds disbursed.
However, despite the average NIM of the banking sector showing improvement, PT Bank Mandiri (Persero) Tbk. (BMRI) has reported that the company is facing challenges. The NIM of BMRI remains at risk of being pressured due to rising funding costs (Cost of Fund/CoF), which adversely affects the profit margins from both fund collection and distribution activities.
Considering the trend in interest rates, it suggests that the benchmark rate is likely to be lowered. The federal funds rate has decreased, which implies that individuals holding funds in USD can expect lower interest rates. Nevertheless, investments in rupiah still appear to be more attractive. (ferry@insightinnews.com)
