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Rising NPL not seen as alarming
Major lenders reported rising bad loans throughout last year but stakeholders have played down the impact on the soundness of the banking industry and, in turn, economic activities
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Major lenders reported rising bad loans throughout last year but stakeholders have played down the impact on the soundness of the banking industry and, in turn, economic activities.
Rising non-performing loans (NPLs) have forced major banks to allocate higher provisions ' an expense set aside as an allowance for bad loans ' which could squeeze their profitability, hence affecting lending expansion.
State-owned Bank Mandiri and Bank Rakyat Indonesia (BRI) and privately owned CIMB Niaga, PermataBank and Bank Internasional Indonesia (BII) ' all among the top-10 largest banks in the country that control 80 percent of total bank assets ' were among the lenders that recorded growing bad loans.
The declining credit qualities span across economic sectors such as mining, agriculture, construction, trading and transportation, according to the banks' full-year financial reports.
Mandiri and BRI, for example, saw the amount of their bad loans in mining grow at least by more than twofold and those in agriculture rise by more than half from 2013.
BII suffered from decelerating quality as well in its agriculture segment, while CIMB's and Permata's credit portfolios were severely affected by loans disbursed to transportation, warehousing and communication, and mining segments.
Banking regulator the Financial Services Authority (OJK) acknowledged this situation ' its latest banking statistics show nationwide increases in NPLs in the same segments throughout 2014 ' but said that it was not worrying.
'We constantly monitor them [the bad loans], but they have not reached a point where the soundness of banks has been affected,' OJK commissioner for banking supervision Nelson Tampubolon said.
Overall NPL stood at 2.2 percent by the end of last year, well below the 5 percent benchmark for soundness, OJK banking statistics show. However, the construction sector had inched closer to the benchmark with 4.6 percent, up from 4.1 percent in 2013.
Nelson said the rise in bad loans was only natural because the economy slowed last year to the lowest level in five years at 5 percent.
'The economy was sluggish in 2014 and found its way into the real sector, but some other sectors were already lagging due to low global prices, such as coal and CPO [crude palm oil],' he told The Jakarta Post, adding that the lenders had found themselves in a tighter spot as high interest rates remained.
Bank Indonesia (BI) deputy governor Halim Alamsyah said that the central bank expected the bad-loan conditions to improve this year, supported by a pickup in the economy, which is targeted by the government to grow 5.7 percent this year.
In construction, he said that the government's efforts to speed up various projects could help clear payment clogs and thus push the NPL ratio down.
Deposit Insurance Corporation (LPS) executive director Kartika Wirjoatmodjo said that the NPL situation was not alarming, citing the banks' current high capital and coverage ratio.
'I don't think we will see the same situation in 2015 because the economy is expected to grow at a faster pace and that will trigger the revival of the trading sector. Meanwhile, in commodities, prices have bottomed out and a rise may occur that will benefit us,' he explained.
To help deal with the matter, these banks decided to set higher loan provisions, as revealed by their financial reports.
CIMB allocated the highest provision among them, up Rp 2.04 trillion (US$158.59 million) from 2013, followed by Mandiri with an additional Rp 1.18 trillion and BRI with an extra Rp 710 billion.
CIMB finance director Wan Razly Abdullah said that the downturn in the macroeconomic environment had impacted the bank, especially on its coal and coal-related loans, and that had forced CIMB to post a high provisioning expense.
Mandiri president director Budi Gunadi Sadikin said that it had also set a higher provision ' most of which was directed to subsidiary Bank Syariah Mandiri ' as a precaution. 'Should we see a decline in the credit quality, we will already have a provision. We don't expect to use all of it,' he added.
