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Indonesia’s banking outlook positive despite tension-filled elections: Danamon

Indonesia may have made headlines for racial and religious tensions that dominated the governor race in Jakarta, but the situation has not affected the banking business in the country, according to an Indonesian bank director.

Vera Eve Lim, director and chief financial officer of PT Bank Danamon Indonesia, told CNBC's "Squawk Box" that the bank saw a pick-up in loan demand in the fourth quarter of last year. That has continued through January and February this year even though those were typically slow months for banks.

"I would say that in general loan demand has started picking up and also in trade finance, you also see customers start coming back to the banks and require more facility… In general I would say we remain positive," Lim said Thursday in response to a question on whether Indonesia's political situation is conducive for banks.

Danamon, the country's sixth largest bank, reported Wednesday that net profit before taxes for 2016 grew 39 percent from the year before to 4.5 trillion rupiah ($336.9 million). The increase was due to growth in non-interest income, better operating expense management and improvement in cost of credit.

The Indonesia lender was once a target for Singapore's top bank, DBS Group, which in 2013 made a bid to buy a 40 percent stake for $6.8 billion in a deal that was scuttled by regulators.

(SMEs), wholesale banking and consumer loans including automobile financing. However, Danamon's overall loan portfolio and trade finance declined by 2 percent last year due to weaker demand for micro banking loans.

Lim said the impending rise in interest rates does not threaten the positive outlook for Indonesian banks, at least for the next 18 months.

"In general, inflation is very low – I think this is the lowest in the last 10 years. So the hike in interest rates it will not impact the banking business in the next 18 months because today's interest rates is also very low, I think historical low."

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