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Restructured loans ‘ticking time bomb’ for banks
Restructuring loans saved Indonesian banks from high loan default rates last year but now, banks are coming to terms with the fact that they might need to restructure loans throughout 2022, chipping away at their profits along the way.
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Illustration of a bank building. (kompas.com/File)
I
ndonesian banks expect to face continued financial strain throughout 2022 as an eased loan restructuring policy, once lauded as a lifeline for banks, is now poised to chip away at their profit margins.
Bankers and banking experts have said that loan restructuring would dampen banks’ interest income over the coming months while interest expenses remain unchanged and provisioning costs remain high.
Their comments relate to the Financial Services Authority’s (OJK) decision to extend a regulation that has enabled lenders to more easily restructure loans. POJK No. 11/2020, which was initially slated to expire in March 2021, was extended by a year to March 2022.
Read also: Loan restructuring program extended until 2022
The experts also pointed to the rising possibility of higher-than-expected loan defaults this year as a recent COVID-19 surge threatens to hamper Indonesia’s economic recovery. Banks would have no choice but to continue restructuring loans despite the risks.
“As a result, the restructured loans are a ticking time bomb for banks,” said banking observer Paul Sutaryono, former assistant vice president of Bank Negara Indonesia (BNI), to The Jakarta Post on Tuesday.
The bankers and experts’ comments over restructured loans signal dimming optimism over the domestic banking industry’s outlook for this year.
