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Mandiri cuts growth target as bad loan challenges persist
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Kartika Wirjoatmodjo (Kompas/Agus Susanto)
I
ndonesia’s largest lender by assets Bank Mandiri is cutting its loan growth target this year as it sees a bleak outlook with bad loans soaring more than expected.
Bank Mandiri president director Kartika “Tiko” Wirjoatmodjo told The Jakarta Post the bank’s loan growth was expected to slow to between 10 and 12 percent this year, down from a previous target of 12 to 14 percent as it gets more cautious disbursing lending amid rising bad loans.
The gross ratio of non-performing loans (NPL), Tiko continued, was expected to soar further to touch 3.5 percent sometime this year, up from 2.89 percent in March and 1.81 percent in March of 2015.
As a consequence, Bank Mandiri will see its loan loss provision, which banks allocate as an allowance for bad loans, surge to between Rp 14 trillion (US$1.02 billion) and Rp 16 trillion this year, from a previous expected figure of Rp 12 trillion.
The weaker-than-expected overall performance is expected to put pressure on and creep into Bank Mandiri’s profit, which last year nearly flat-lined at 2.3 percent growth, totaling Rp 20.3 trillion.
These changes are expected to be incorporated into Bank Mandiri’s revised business plan to be submitted to the Financial Services Authority (OJK) this month.
“The honeymoon period is over. We can never expect 20-something percent loan growth again,” Tiko said in an interview on Thursday.
Indonesia’s banking sector overall has been hit by a combination of increasing bad loans and weak demand against the backdrop of a domestic economy that has yet to see significant improvement after its growth hit a six-year low of 4.79 percent in 2015.
Nationwide commercial banks’ loan growth weakened to 7.7 percent April, far below the OJK’s goal of 12 to 14 percent loan growth this year. Gross NPL ratio stood at 2.8 percent in March, a figure that has continued to worsen since hitting 2.46 percent in May last year.
“The credit quality of the corporate sector has been declining since the end of 2014 with balance sheets deteriorating across sectors,” international credit ratings agency Standard & Poor’s (S&P) wrote in its latest assessment on Indonesia, published on Wednesday, which maintains the nation’s sovereign credit rating at BB+ with a positive outlook, one notch below invest budget ment grade.
The worse-than-expected performance of Bank Mandiri may be a sign of worsening performances by local banks in the months ahead.
S&P credit analyst Ivan Tan said in his latest report that Indonesian banks’ NPL would continue to increase to between 3 and 4 percent this year, in accordance with the regional trend due to external macroeconomics headwinds.
Tan said the ratings agency assumed that credit quality would deteriorate gradually, rather than spiking sharply. However, the ASEAN banks’ high capital reserves, he added, would act as sufficient buffers to maintain resilient in the face of global risks this year.
Going forward, Bank Mandiri will push for credit growth in promising sectors such as corporate (including state-owned enterprises), consumer (motorcycles, cars) and micro loans, which have seen above-average growth.
The bank has established a special business division, called the “Special Asset Management Unit”, to focus on monitoring and assessing bad loans, which primarily occur in the coal sector and in commodities overall.
“We can only hope to grow above the market,” Tiko said.
