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Jakarta Post

Moody’s changes outlook for RI banking system to stable

  • News Desk

    The Jakarta Post

Jakarta   /   Wed, August 8, 2018   /   04:43 pm
Moody’s changes outlook for RI banking system to stable Moody’s Investors Service has changed its outlook for the Indonesian banking system from positive to stable. (Shutterstock/File)

Moody’s Investors Service has changed its outlook for the Indonesian banking system from positive to stable.

“The stable outlook reflects stabilizing asset quality in a robust macroeconomic environment and banks' thick loss absorbing buffers, which are underpinned by strong profitability,” Moody’s said in a statement received by The Jakarta Post on Wednesday.

Macroeconomic policies will help the country's real gross domestic product (GDP) grow 5.2 percent annually in 2018 and 2019, building on a 5.1 percent expansion in 2017, the statement said, adding that loan growth will accelerate to an annual pace of 10 to 12 percent during this outlook period from 8.2 percent in 2017.

Asset quality will broadly stabilize over the next eight to 12 months as a stronger economy will drive corporate revenue growth, while formation rates of new nonperforming loans (NPLs) and restructured loans will remain far below their 2016 peaks after sharp declines in 2017, Moody’s added.

Moody’s also sees robust revenue growth and declining credit costs enabling banks to generate sufficient capital to support accelerating asset growth.

“The system's Tier 1 capital ratio, which exceeded 20 percent at the end of May 2018, is well above those of other Asian systems,” it said, adding that faster loan growth will pressure banks' funding, with loan-to-deposit ratios (LDRs) at some banks rising.

Moody’s also expects Indonesian banks' core profitability to remain strong, supported by wide net interest margins (NIMs) of around 5 percent, well above levels for their regional peers, saying that stabilizing credit costs will also help banks maintain robust profitability.

It also sees the sovereign rating upgrade in April 2018 as reflecting the government's improved capacity to provide support for banks. (bbn)