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State-owned banks post record-low profits amid weak demand, high provisions
State-owned banks had it "bad" last year because the government had ordered them to actively restructure the loans of millions of micro, small and medium enterprises (MSMEs).
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Two state-owned Bank Mandiri buildings in Jakarta. (Courtesy of Bank Mandiri)
I
ndonesia’s top three state-owned banks, which are among the country’s biggest lenders, saw their net profits fall to record lows in 2020 as a result of weak loan demand and flagging asset quality during the COVID-19 pandemic.
Bank Mandiri saw its profit dip by 37.7 percent year-on-year (yoy) to Rp 17.1 trillion (US$1.21 billion) last year, its lowest since 2016. Meanwhile, Bank Rakyat Indonesia (BRI) and Bank Negara Indonesia (BNI) saw an even steeper drop in net profits, by 45.8 percent and 78.7 percent yoy respectively, the lowest since 2012 for BRI and since 2009 for BNI.
Praus Capital research head Alfred Nainggolan said state-owned banks had it particularly bad last year because the government had ordered them to actively restructure the loans of millions of micro, small and medium enterprises (MSMEs).
“State-owned banks had to deal with losing interest income whenever they relaxed loans for borrowers,” said Alfred. “It was a burden on the corporations, but it helped MSMEs.”
The economic slowdown simultaneously strained borrowers’ ability to repay loans and hampered loan demand growth in Indonesia, a double blow to the country’s banks.
Adding to the financial strain was a one-year loan restructuring program introduced by the Financial Services Authority (OJK) in March 2020 to help ease the financial burden om MSMEs, which employ the majority of the nation’s workforce. The program has been extended to 2022.
Read also: Loan restructuring program extended until 2022
