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Falling loan demand hits state-owned banks' profit
State-owned banks recorded less than stellar performances in 2019 as their profits slumped due to sluggish loan growth and a new regulation that requires banks to set aside more in loan-loss provisions
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tate-owned banks recorded less than stellar performances in 2019 as their profits slumped due to sluggish loan growth and a new regulation that requires banks to set aside more in loan-loss provisions.
Publicly listed Bank Negara Indonesia (BNI) and Bank Rakyat Indonesia (BRI), for instance, were only able to record single-digit profit growth throughout last year.
Bank Mandiri, meanwhile, was still able to record almost 10 percent profit growth, although the figure was only half what it recorded in 2018.
BNI’s net profit grew just 2.5 percent year-on-year (yoy) to Rp 15.38 trillion (US$1.12 billion) in 2019. The growth was much slower than the 10.3 percent growth it recorded in 2018.
BRI’s profit grew 6.15 percent yoy to Rp 34.14 trillion last year, the slowest pace the bank has experienced since 2017, while Bank Mandiri booked a profit growth of 9.86 percent yoy to Rp 27.5 trillion. Despite the strong performance, Mandiri’s profit growth was less than half the 21.2 percent growth it scored a year before.
“The general elections and lower commodity prices last year decreased loan demand, so we weren’t able to book higher loan growth as well,” said Bank Mandiri president director Royke Tumilaar on Friday in Jakarta.
It was a gloomy year in 2019 for the country’s banking industry, with loan growth moving at a snail’s pace. Bank Indonesia (BI) data showed that loan disbursement expanded just 6.08 percent last year, the slowest pace since 2009, versus 11.7 percent in 2018.
Such sluggish growth signaled weak economic activity amid global and domestic uncertainties last year. Indonesia’s economy grew 5.02 percent in the third quarter, the lowest rate in more than two years, amid stagnating consumption and falling exports and investment.
BRI president director Sunarso admitted that 2019 was a difficult year for the micro business-focused bank as many performance indicators, such as loan growth, plunged.
The country’s largest bank by asset value disbursed Rp 908.88 trillion in loans last year, translating to an annual growth rate of 8.44 percent, lower than the 14 percent growth recorded a year before.
At the same time, BRI’s bad credit rose as its nonperforming loan (NPL) rate reached 2.8 percent, significantly higher than 2018’s figure of 2.27 percent.
BNI finance director Ario Bimo said his company needed to set aside more in loan loss provisions to comply with new accounting standards.
“We estimate that we need to add another Rp 13 trillion to Rp 15 trillion for loan loss provisions to comply with the new standards,” he said, referring to accounting standard (PSAK) 71, which requires banks to set aside provisions from the beginning of a loan period for both good and bad loans.
The bank’s loan disbursement also grew sluggishly by 8.6 percent yoy to Rp 556.77 trillion last year, only a half of the 16.2 percent recorded in 2018. Its NPL rate increased to 2.3 percent from 2018’s rate of 1.9 percent.
BNI’s stocks, traded on the Indonesia Stock Exchange (IDX) under the code BBNI, plunged 3.25 percent on Monday, deeper than the 1.78 percent drop recorded in main gauge the Jakarta Composite Index.
BRI's stocks, under code BBRI, dropped 1.9 percent during the trading session, while Bank Mandiri’s stocks, under code BMRI, fell 2.52 percent.
Bank Mandiri, the nation’s second largest bank by asset value, disbursed Rp 907.5 trillion in loans as of December last year, up 10.65 percent yoy compared to the 12.4 percent growth it recorded in 2018.
Its bad credit ratio fell to 2.33 percent from 2.75 percent in 2018.
Economist at privately owned Bank Permata Josua Pardede said uncertainties from the presidential and legislative elections last year, as well as from the United States-China trade frictions discouraged businesspeople from expanding their businesses.
“The dispute hampered global demand for goods, so it was less appetizing for businesses to drive their investments higher last year,” he told The Jakarta Post over the phone.
The decision to hold back on investment played a role in the sluggish credit demand.
Josua said the banks in the BUKU III category — whose core capital is between Rp 5 trillion and Rp 30 trillion — were the hardest hit hardest.
Financial Services Authority data showed that BUKU III banks recorded an average loan growth of only 2.4 percent in 2019, well below 2018’s figure of around 12 percent.
However, Josua projected this year’s loan growth to reach between 7 and 10 percent as global uncertainties dissipated.
