Indonesia's commercial banks posted a strong performance in 2010 on the back of vigorous economic growth. Total net profits came to Rp57.3trn, up by 27% on the Rp45.2trn that was recorded in 2009, according to Bank Indonesia (BI, the central bank). Loan disbursements rose to Rp1,765.8trn, up by 23% on 2009, while third-party funds (borrowing by banks) rose by 18.5%, to Rp2,338.8trn. The total assets of the country's 122 banks were worth Rp3,008.9trn at end-2010, up by 20% compared with 2009, while the average capital-adequacy ratio stood at 17%. In 2011, according to BI, commercial banks plan to increase lending by 24%-above the central bank's target of 20-23%. As third-party funds are set to grow more slowly this year, by 15%, it appears that lending growth will be funded from banks' existing reserves of liquidity, as well as from new deposits. This would take the average loan to deposit ratio up to around 80%, from 75% at end-2010.

Accordingly, some banks are now taking steps to replenish their capital reserves. Indonesia's largest commercial bank, Bank Mandiri, raised Rp11.7trn through a rights issue that closed in mid-February, in the largest such issue ever by an Indonesian bank. The issue will lift Bank Mandiri's tier-1 capital adequacy ratio to around 14%, from slightly under 10% at present. Bank Mandiri's rights issue follows similar issues by Bank Negara Indonesia, Bank Kasawan and Bank Muamalat in recent months. Together, these three issues raised a total of Rp14trn, providing capital to support continued strong growth in lending in 2011.