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NPLs still major concern for banks
The increase in bad loans or non-performing loans (NPLs) is predicted to continue to be a major concern among banks in the second half of the year as the lenders gear up with hefty provisions
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The increase in bad loans or non-performing loans (NPLs) is predicted to continue to be a major concern among banks in the second half of the year as the lenders gear up with hefty provisions.
According to executives at several major banks, there is still a possibility of seeing an uptick in the number of bad loans in the months leading up to the end of the year.
Bank Negara Indonesia (BNI) president director Achmad Baiquni told The Jakarta Post that the state lender was still expecting to see some deterioration in its loan quality.
'It [the deterioration] is scattered evenly across all sectors because they are all impacted by the current economic slowdown,' he said.
From January to June, BNI recorded an increase in each of its gross and net NPL ratios compared to the same period a year ago. Its latest financial report shows that the gross NPL rose to 3 percent from 2.2 percent and the net ratio surged to 0.8 percent from 0.5 percent.
The quality deterioration was visible in almost all of its loan qualifications, which resulted in BNI posting Rp 5.7 trillion (US$421.15 million) in bank-only loan impairments in the second half, double what it was in June 2014.
The high impairment eventually squeezed its profitability ' down 52.6 percent year-on-year (yoy) ' and led to a 68 percent yoy rise in its overall loan provision.
'We're carrying out measures to push down the gross NPL ratio to below 3 percent by the end of the year,' Baiquni said, adding that it would make use of a recent loan restructuring policy that was issued by the Financial Services Authority (OJK) to mend its loan quality.
Jahja Setiaatmadja, the president director of the largest private lender, Bank Central Asia(BCA), acknowledged that there had been an increase in bad loans across the banking industry in the first half of the year, which would continue into the second part of the year.
However, he predicted that the increase would occur gradually in the second half and would still be 'under control'.
BCA's own first-half financial report reveals that it posted a 12.3 percent yoy climb in its loan impairment from January to June and its loan provision grew 17.5 percent yoy at the same time.
Jahja also estimated that loan growth would remain flat until year-end, but it would not be worse than what the industry saw in the first half even though businesspeople were still holding back from venturing into massive investments.
Meanwhile, PermataBank president director Roy Arman Arfandy said in an email that he shared the same sentiment of declining loan quality. 'But it will not be as bad as in the first six months because most banks are already aware of the problem and are more prudent,' he said.
The higher prudence, Roy added, was reflected in the banks' revised loan targets, down from the original ones.
Separately, Bank Mandiri president director Budi Gunadi Sadikin predicted that the rise of bad loans would linger for a year before it subsided in 2016.
Mandiri's net NPL ratio climbed slightly to 0.6 percent from 0.5 percent, while its gross NPL ratio was up 2 percent from 1.8 percent.
'We are trying to get through the year unscathed and are taking conventional measures. That's why we think that our profit will only rise by a single digit in 2015,' he said.
