Can Bank Central Asia dominate the mortgage market in the long run?

Bank Central Asia, Indonesia's second-largest financial services company, forecast 2007 loan growth will reach 20 percent, accelerating for the first time in three years as it grabs a bigger share of the mortgage market.

"Loan demand is picking up," Djohan Emir Setijoso, president of the Jakarta-based bank controlled by U.S. hedge fund Farallon Capital Managemen, said. "Mortgages will be part of our future core business." The bank is offering lending rates a third cheaper than the industry average to lure home buyers as Indonesia's fastest economic growth in 11 years lifts incomes. Setijoso expects mortgage demand to withstand the impact of record oil prices that prompted the central bank to refrain from cutting benchmark borrowing costs last week on concern inflation may accelerate.

"The loan-growth target ‘is very achievable," said Tjandra Lienandjaja, a banking analyst at PT BNP Paribas Securities in Jakarta. "They have been more aggressive in lending, offering very low fixed-interest rates."

Bank Central Asia's loan growth last year was 13.8 percent, after a doubling of fuel prices in 2005 drove inflation to a six-year high and led the central bank to raise its benchmark rate to 12.75 percent. Loans expanded 30.8 percent in 2005 and 38.7 percent in the previous year.

Bank Indonesia held the rate used as a reference for bill sales at 8.25 percent for a fourth month in early November, after Governor Burhanuddin Abdullah expressed concern about imported inflation. Crude oil reached a record $98.62 last week. The push to increase home loans has squeezed profitability. Net interest margin, or the difference between what the bank earns on loans and pays for funds, is forecast to fall by between 1 and 1.5 percentage points this year from 6.59 percent in 2006.

Bank Central Asia was founded by Liem Sioe Liong, formerly Indonesia's richest man, whose family runs the world's biggest maker of instant noodles. San Francisco-based Farallon Capital and its Indonesian partner bought 51 percent of the bank in 2002.

Will there be a decrease in loans from Bank Central Asian as the Indonesia economy picks up?