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NPL ratio to stay healthy despite economic slowdown
Indonesiaâs economic slowdown is unlikely to trigger a significant increase in bad loans in the countryâs banking industry, as banks will become more selective in choosing borrowers, a local rating agency says
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ndonesia's economic slowdown is unlikely to trigger a significant increase in bad loans in the country's banking industry, as banks will become more selective in choosing borrowers, a local rating agency says.
ICRA Indonesia, a rating agency controlled by Indian credit rating agency ICRA Ltd., estimates Indonesia's non-performing loans (NPL) ratio would remain below 2 percent and only slightly increase from 1.8 percent recorded last year.
The NPL ratio measures a bank's non-performing loans against its total loan portfolio. NPL is the category of loans for which payments are more than 90 days late.
'The banks' selective lending criteria, in line with recent Bank Indonesia [BI] regulations to curb aggressive consumer growth, as well as continuous close monitoring of bank performance will keep the NPL ratio healthy,' ICRA assistant vice president Kreshna Armand said at a press conference Wednesday.
BI issued a new banking regulation in 2012, setting minimum down payments for housing and vehicle loans.
'However, banks should carefully watch out in the consumer goods and property sectors as the high inflation rate will weaken consumer purchasing power,' Kreshna said.
Atma Jaya economist A. Prasetyantoko said that an economic slowdown would normally cause an increase in non-performing loans, but for Indonesia, whose gross domestic product (GDP) growth is expected to fall to 5.3 percent from 5.5 percent last year, NPL growth would be limited.
'The NPL ratio in Indonesia will not exceed 2 percent as the existing banking regulations have resulted in the gradual improvement of the NPL ratio,' he said.
According to BI data, Indonesia's NPL ratio had been continuously improving, from 6.1 percent in 2006 to only 1.8 percent last year.
ICRA also predicts that Indonesia's credit growth will decline to between 17 and 19 percent, as many companies would delay new investments due to the upcoming elections.
Last year, total bank loans grew 21.6 percent to Rp 3.29 quadrillion (US$290 billion) despite several challenges, such as the fuel price hike, current-account trade deficit and speculation over US tapering of stimulus money.
The agency's growth prediction is, however, higher than BI's prediction of between 15.3 and 16.6 percent.
'Many debtors [particularly firms] will likely hold back their capital expenditures as they are still waiting for the result of the upcoming elections ' whether the new leaders will be supportive,' Kreshna said.
He said, however, that most debtors would still have access to loans for working capital, which accounted for 48.2 percent of the total loans last year.
'This factor is why our projection is higher than the previous BI prediction,' he added.
The agency also predicts that third-party funds ' saving, time deposits and demand deposits ' will remain the same, at around 10 to 13 percent, because there are still many who do not have access to financial services. (koi)
