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

As a result of these pressures, the three banks’ provisioning expenses shot up last year and eroded their bottom line. Bank Mandiri, for example, increased its provisions by 89.7 percent to Rp 22.89 trillion from the same period last year. BNI also increased its provisions by 155.6 percent yoy in 2020.

Speaking at a virtual press briefing on Jan. 29, BRI president director Sunarso noted the impact of the restructuring program on the bank’s performance.

“There was a month where we did not profit at all, as we had allocated all our resources to restructuring to save our main customers: MSMEs,” he said.

However, Bank Mandiri, BRI and BNI kept their gross non-performing loan (NPL) ratio – the proportion of bad loans to total debt – below the legally mandated 5 percent ceiling, at 3.1 percent, 2.9 percent and 4.3 percent, respectively. But by November 2020, two had exceeded the national average of 3.18 percent.

Bank Mandiri’s loan disbursements dropped by 1.6 percent to Rp 892.8 trillion, while BNI saw its loans grow by 5.3 percent to Rp 586.2 trillion and BRI by 3.9 percent to Rp 938.37 trillion, all of which are lower than the previous year’s growth rates. On the whole, the banking industry’s loan disbursement shrank by 2.41 percent last year, according to the OJK.

With decreasing loans, the banks’ net interest income (NII) either fell or grew at a lower rate. Bank Mandiri saw a 4.9 percent yoy contraction in NII to Rp 56.5 trillion in 2020. Meanwhile, BNI saw its NII grow by 1.5 percent to Rp 37.1 trillion, and BRI dipped by 3.1 percent to Rp 79.2 trillion.

Alfred noted that “state-owned banks' 2020 fundamental performance was much lower than privately owned banks" in the January to September period. Privately owned banks have not yet released their full-year financial reports.

The three lenders’ profits were shored up by growth in fee-based income as at-home customers made more online transactions during large-scale social restrictions (PSBB).

Mandiri’s digital banking product, Mandiri Online, has reportedly seen a 40 percent rise in active users, reaching 4.5 million users last year, according to the bank’s president director, Darmawan Junaidi, as reported by kontan.co.id.

Mandiri’s income from its online and SMS banking services grew 19.3 percent yoy in 2020 to Rp 964 billion, according to the company’s data.

Mirae Asset Sekuritas Indonesia analyst Lee Young Jun told The Jakarta Post on Tuesday that the banks’ weak loan growth figures had fallen within expectations, given the pandemic. 

“The biggest issue in 2020 was asset quality management. Cash flow is the key point for manufactures, while asset quality is the number one priority for banks,” he wrote.

He noted that BNI was the worst performer of its peers last year in terms of asset quality. The lender had raised its loan provisions by the highest degree – over 100 percent.

“We raised provisions for borrowers whose credit quality had dropped into NPL. It was also to brace for economic challenges going forward,” said BNI deputy president director Adi Sulistyowati on Jan. 29, as reported by Kontan.co.id.

Going forward, both Lee and Alfred highlighted reviving loan demand as the key to the banking industry’s recovery in 2021. This, they said, was tied to improving the country’s economy.

“We’re talking about macroeconomic sentiment as key to the banking industry’s recovery. Asking them to struggle again this year would be pretty burdensome,” said Alfred, adding that the government had a key role in improving sentiment, including by providing incentives.

Mirae Asset expects loan demand to begin recovering in the second quarter of 2021 on the back of government programs to improve purchasing power and distribute COVID-19 vaccines. The company believes the recovery will be led by micro businesses, followed by the corporate segment later this year.

“Everyone knows that the economy will normalize post-vaccination. However, the speed of recovery [in banking] will depend on who has managed the loan book in 2020 and [if they are] able to normalize the book in 2021,” said Lee Young Jun.

Separately, OJK chairman Wimboh Santoso said he expected loan disbursement to grow 6.5 to 8.5 percent and third-party funds to expand between 10 and 12 percent this year to support economic growth.

“We are optimistic that these policies will help us boost the role of financial services in the economy,” he said earlier in January.

Darmawan of Bank Mandiri said the bank expected demand for loans to recover this year.

“For the banking industry, we still see quite a big opportunity,” he said on Wednesday.

He said food and beverage businesses, plantations, coal, renewables and fintech would drive growth in 2021.

– Dzulfiqar Fathur Rahman contributed to this story