In 2012 we saw solid performance of Indonesia's banking industry, however, the question now is how it will perform in 2013, and if it would be able to maintain the momentum.
For the last one year, the banking industry remained strong.
As of June 2012 the key performance drivers shown remarkable results.
Operating Profit increased by 40%, Net Profit grew 23% on year on year, asset quality also showed improvement with Non Performing Loan (NPL) declined to 2.
2% level from 2.
7% with flat NPL balance.
These excellent results were contributed by aggressive lending strategy taken by the banks, with 26% increase in credit growth year on year, that was driven by strong economy reflected by Gross Domestic Product (GDP) growth at the level of 6%, one of the highest in the world.
Besides strong top line results, another strategy taken by banks to drive performance was improvement in efficiency.
Efficiency indicator, operating cost divided by operating profit, reduced significantly to 75% from 86% last year.
Many initiatives, particularly in technology, such as electronic banking, contributed to cost saving in banking operational process, which in turn affecting favourably the bottom line performance of the banks.
In spite of many critiques on bankers' salary, banks show that they were able to run the businesses more efficient.
A stable non - performing loan (NPL) confirmed that growing asset was followed by prudential principle to maintain booking quality.
Banks were able to balance the asset growth and solid Risk Management process.
This was crucial aspect to ensure the sustainable growth of the banking sector in the future.
In terms of capital adequacy, banks have been able to maintain it at healthy level.
Capital Adequacy Ratio (CAR) stayed stable compared to 2011, stood at 17.
5%, which was above the regulatory requirement of 8% CAR.
Amidst the fast growth in credit, which required significant capital to support it, capital position remained strong.
Bank was in solid condition to face any adverse internal or external shocks.
Considering solid performance in 2012, banks have a strong base to enter 2013.
However, the banks should be prepared to face several risks in 2013.
First, liquidity risk.
The fast credit growth in 2012 was not followed by same growth at funding, putting pressure on the gap between credit and funding.
Loan Deposit Ratio (LDR), which is the parameter applied by Indonesia's central bank to monitor the gap, currently stands at high-end range of 83%, with the highest being 100%.
Looking even deeper into the bank segments, pressure in LDR is more pertinent in middle size banks, as some banks have LDR > 90%.
However, this is not a new trend, as LDR has been increasing since 2006 level of 62%.
Second, banks should be watchful with the trend of fast consumer lending growth.
Given the fact that consumer lending portion is still relatively low compared to other credit types, faster growth rate in this segment should be expected in 2013.
While the consumer lending's high margin is very attractive, it also tends to have higher risk profile.
Banks must prepared themselves with the right and timely strategy, infrastructure and expertise; in order to avoid condition whereby the risk of consumer lending is disproportionately higher than the revenue.
Newcomers or banks with limited prior experience in this credit segment must be extra vigilant in entering the segment.
Third, various regulations that were launched in 2012 will start to have bigger impact in 2013.
Bank of Indonesia issued several important regulations, such as new maximum level of Loan to value (LTV) ratio for mortgage and new minimum down payment percentage for auto loan, which have been effective in 2012, and new Credit Card regulation which will be effective in Jan-13.
Close monitoring is a must to ensure any adverse effect of new regulations to banks' performance could be mitigated timely and accordingly.
Overall, 2012 was a very good year for Indonesia's banking industry.
This fact enables the banks to enter 2013 with good performance base and more solid fundamentals to face challenges in 2013, although uncertainties still linger in global economy.