The Jakarta Post
The economic slowdown has begun to take its toll on the profitability of banks as the decline in lending growth has reduced income from interest, according to the latest banking statistics.
The statistics, published by the Financial Services Authority (OJK), show that commercial banks' profits fell 0.7 percent to Rp 36.85 trillion (US$2.76 billion) in April from a year ago. This is the first year-on-year (yoy) decline that the industry has posted so far this year after it continuously recorded a slower lending growth rate since January.
State banks ' Bank Mandiri, Bank Rakyat Indonesia (BRI), Bank Negara Indonesia (BNI) and Bank Tabungan Negara (BTN) ' and regional development banks (BPDs) were the only ones to reap higher profits.
While state banks reported a 3.6 percent year-on-year increase to Rp 18.27 trillion in profit, BPDs saw the bottom line surge 17.7 percent annually to Rp 3.92 trillion.
All other banks ' consisting of foreign exchange, non-foreign exchange, joint venture and foreign-owned banks ' suffered declines in their profitability.
The statistics reveal that joint venture banks were the hardest hit as their profit plunged 36 percent year-on-year to only Rp 968 billion.
Meanwhile, foreign exchange, non-foreign exchange and foreign-owned banks reported a decline of 5.4 percent, 6.5 percent and 9.3 percent, respectively, compared to the same period in 2014.
OJK deputy commissioner for banking supervision Irwan Lubis acknowledged that the situation had become quite challenging for the industry, especially because credit growth had softened amid the cooling economy.
'You can definitely see a change between credit growth this year and last year. The amount of credit disbursed in the first four months of 2015 was not robust,' he said on Friday.
According to the statistics, the amount of loans reached Rp 3.71 quadrillion in April 2015, an increase of 10.4 percent from April 2014. However, the amount actually rose by a mere 1 percent year-to-date, reflecting a grimmer outlook of the whole industry.
'There was an increase in the amount of bad loans during that period as well that forced banks to allocate higher provision funds, eventually reducing their net profit,' Irwan said.
In April, the amount of bad loans surged 33.8 percent on an annual basis to Rp 92.14 trillion from the previous year. It then drove the non-performing loan (NPL) ratio to 2.5 percent from 2 percent.
The rising bad loans were most noticeable in the investment loan segment, which jumped by half from April 2014.
Bank Indonesia (BI) senior deputy governor Mirza Adityaswara said the latest results made it more difficult for banks to reach their full-year target.
BI previously projected credit growth at 15 to 17 percent for 2015. 'But it may be harder to realize that projection now,' he said without providing details on whether the central bank would revise its projection.
Meanwhile, Deposit Insurance Corporation (LPS) economist Doddy Ariefianto said the lenders must remain vigilant over the possibility of further increases in bad loans, especially in sectors prone to economic changes, such as trading and construction.
'It's not a matter of bank size. Any bank with high exposure to bad loans must prepare enough capital as a buffer, and this applies to all kinds of banks,' he said.
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