JAKARTA, Oct 30 (Reuters) - Indonesia's top two banks posted strong profit growth in the first nine months of the year, despite tougher domestic conditions marked by a jump in interest rates, slower economic growth and a sharply weaker rupiah.
State-controlled Bank Mandiri said nine-month net profit rose 15 percent from a year ago to 12.8 trillion rupiah ($1.2 billion), while Bank Central Asia (BCA), the country's biggest bank by market value, said net profit rose 25 percent to 10.4 trillion rupiah.
"In a more challenging environment marked by slower economic growth, higher inflation and (the) weaker rupiah, BCA has been able to deliver a solid performance with a solid liquidity position and strong capital," BCA chief Jahja Setiaatmadja said on Wednesday.
"We are confident that amidst recent challenges in the economy, prospects for the banking industry in Indonesia remain promising."
Setiaatmadja added that non-performing loans were only slightly higher at 0.5 percent against 0.4 percent last year, while corporate lending was up 25.5 percent year-on-year.
The central bank's benchmark interest rate has gone up 150 basis points since June to a 4-1/2 year high of 7.25 percent. Economic growth is expected to come in well under 6 percent this year, compared with earlier forecasts of 6.2 percent or more, while the rupiah has fallen about 14 percent this year.
Setiaatmadja said overheads had risen, cutting into profit margins. "The central bank is already indicating that it expects loan growth to slow down, at rate of 14 to 15 percent.
"One concern is if the banks are still pushing loan growth at above 20 pct, it will trigger a rate war between banks and will put pressure on our income margins."
Bank Mandiri Chief Executive Budi G. Sadikin also expected a credit growth slowdown next year to between 15 and 20 percent.
Some analysts said declining net interest margins were expected to continue, which coupled with a slowdown in mortgage growth would force banks to cut costs.
"As banks have been adjusting their rates on both assets and liabilities, we expect net interest margins to decline to 6.8 percent by the end of this year from 7.0 percent in the second quarter," Jakarta-based Mandiri Sekuritas said in a note, added it revised down earnings projections for 2013-14 by 9 and 10 percent.
"We anticipate total loan disbursements will start slowing down in October as the rupiah is stabilising, banks are adjusting their lending rates and the new rulings on mortgage loan-to-value (LTV) and secondary reserve requirement are being implemented."
In August, Indonesia's central bank cut the ceiling on the loan-to-deposit ratios (LDR) of commercial banks to 92 percent and said it planned to increase the secondary minimum reserve requirement for rupiah deposits to 4 percent.
However, the mortgage slowdown is seen as helping reduce risk in the booming property sector.
"Although this new mortgage regulation may dampen future housing demand, we think it would not only help to prevent but also curb potentially higher loan defaults as have started being seen in some banks' mortgage performance," said Teguh Hartanto, a banking analyst at Bahana Securities.
Bank Mandiri and BCA shares closed 1.2 percent and 0.9 percent higher at 8,750 rupiah and 10,700 rupiah respectively. The banking sector was 0.7 percent higher, while the broader Jakarta Composite Index rose 0.3 percent. ($1 = 11,102.5 rupiah) (Editing by Jonathan Thatcher and David Holmes)