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tate-owned lender Bank Tabungan Negara (BTN) expects to continue reducing its bad loans to a certain level until the end of the year as its business growth stays on track, its executives have said.

The country’s largest mortgage lender saw its gross non-performing loan (NPL) ratio fall by 56 basis points (bps) to 2.78 percent in the first quarter this year, from 3.34 percent seen in the same period of 2017.

The Financial Services Authority (OJK) set 5 percent as the acceptable level for banks’ NPL ratio.

The gross NPL decline dragged down the net NPL figure in the first quarter of 2018 to 1.78 percent from 2.35 percent recorded in the corresponding period of last year.

BTN director Nixon Napitupulu said the previous increase in NPL was mainly caused by the non-subsidized mortgage segment, particularly due to customers’ inability to pay higher floating interest rates after the fixed period had ended.

“We plan to revamp interest rates [charged on mortgage customers] in the promo scheme,” he said in Jakarta recently.

The bank has ended its latest mortgage promo running from Jan. 16 to March 31, which offered a fixed interest rate at 8 percent and 9 percent for three and five years, respectively.

Meanwhile, Nixon said the NPL ratio in subsidized houses and commercial loans had improved, helping the bank reduce its overall bad loans by the end of March this year.

By the end of 2018, BTN expects that its gross NPL ratio will reach 2.3 percent through the help of several strategies, such as a credit restructuring program and better credit management.

“We will do restructuring for non-subsidized housing loan customers who still have income and extend their payment periods,” he said.

As an effort to maintain its credit quality, the bank increased its loan-loss provision by 49.8 percent yoy to Rp 207 billion (US$14.8 million) in the first quarter of this year.

An increase in loan provision was just one factor causing its net profit growth to be below the targeted 25 percent in the first quarter this year. Its net profit only grew by 15.1 percent to Rp 684 billion during the period.

Nevertheless, the bank’s credit disbursement during the first three months of this year brought a breath of fresh air as it booked 19.3 percent year-on-year (yoy) growth in outstanding loans to Rp 202.5 trillion.

Housing credit, which made up 91 percent of BTN’s overall loan portfolio, grew by 20.3 percent yoy to Rp 184.4 trillion in the first quarter of this year. Non-housing loans, meanwhile, increased by 10.17 percent yoy to Rp 18.03 trillion during the same period.

BTN president director Maryono was optimistic that the bank would be able to reach its loan growth target of around 22 percent to 24 percent as it had been seeing a continuous increase in third party funds.

The bank’s third party funds rose by 23.5 percent yoy to Rp 194.4 trillion in the first three months of this year, much higher than the industry’s average at 8.4 percent yoy.

BTN’s current loan growth might still be below the target, but Maryono believed that demand for both subsidized and non-subsidized housing mortgages would start to pick up in the third and fourth quarters.

“This is the general trend in mortgage loans, which tend to be slower in the first quarter as [developers] have just completed the process of paying for land [acquisitions], permits and other things,” he said.

BTN also reiterated its commitment to supporting the government’s one million housing program, in which state subsidy is given to participant banks to reduce the mortgage lending rate to as low as 5 percent.

As of the first quarter, the bank had channeled subsidized housing loans worth Rp 24.2 trillion for 278,262 housing units, or equal to 37.1 percent of the targeted 750,000 this year.