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High interest rates, bad loans seen to hurt SOE banks’ profits this year
Letting state-owned lenders write off bad SME loans, a standard practice at private banks, could help the banks improve their net profits, an analyst says.
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A customer of state-owned lender BRI exits a BRI ATM kiosk in Kediri, East Java, on March 13, 2018. (Antara/ Prasetia Fauzani)
Net profit growth of state-owned banks is expected to slow down significantly this year despite stable loan growth.
Analysts and government officials point to the high interest rate environment, which tightens liquidity and increases the cost of funds, as well as to the worsening quality of small and medium enterprise (SME) loans, as factors cutting into profits.
An analyst opined that permission from the government to write off bad SME loans, which is standard practice at private banks, could help state-owned enterprise (SOE) banks maintain their bottom-line growth this year.
In the first four months of this year, SOE banks booked only Rp 40.74 trillion (US$2.5 billion) in net profit, a mere 3.22 percent increase over the same period last year. That represents a significant deceleration from the 20.9 percent jump those lenders recorded for the full year of 2023.
In contrast, BCA, Indonesia’s largest private sector bank by assets, achieved net profit growth of 11.6 percent during the same period, following a 19 percent surge last year.
Deputy SOE Minister Kartika Wirjoatmodjo forecasted that both loan disbursement and net profit of SOE banks would grow by less than 10 percent this year, based on their performance so far. He pointed to external challenges, such as the “higher for longer” United States Federal Reserve interest rate situation, pushing up banks’ cost of funds as the major cause.
“There is also worsening credit quality, although we are still managing it well,” he said on Friday, as quoted by Kontan.
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