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Pandemic loan restructuring scheme nears $70.5b
Indonesia has initiated the restructuring program to cushion the impact of economic downturn. About 39.3 percent of the restructured loans cover small businesses.
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he country's loan restructuring program has reached nearly Rp 1 quadrillion (US$70.5 billion) as borrowers reel from economic downturn during the pandemic.
The Financial Services Authority (OJK) reported Friday the amount of restructured loans was recorded at Rp 987.48 trillion as of Feb. 8, involving 101 banks. Some 39.3 percent are from 6.15 million small business borrowers and the rest is from 1.79 million other borrowers.
The loan restructuring program has led to increases in the loan-at-risk ratio (LAR) to 23.38 percent in December last year, up from 9.93 percent in December 2019.
“This means that we know many borrowers have been affected by the pandemic, so they have to restructure and thus show up in the LAR,” Bambang Widjanarko, the deputy commissioner of banking supervision II at the OJK, said in a virtual briefing.
“If we look at the trend, it has plateaued,” Bambang added. “After it was launched in March, the restructuring surged in April. Then it started plateauing in October. There appears to not be much right now.”
Read also: Bad loans to keep rising this year as economy yet to fully recover
The OJK issued the regulation for the loan restructuring program in March last year to provide relief for borrowers impacted by the COVID-19 pandemic by relaxing debt quality assessments and restructuring requirements for loans worth up to Rp 10 billion. The authority is extending the program to March next year.
Banks can lower interest rates, defer payment, reduce principal or interest arrears, add loan facilities or convert loans into temporary equity participation schemes.
Banks are also allowed to consider restructured loans “good loans” and need not consider them non-performing loans (NPL) or set aside loan-loss provision for them as part of the authority’s effort to cushion the pandemic’s blow against the banking industry.
The pandemic has led to 1.92 percent contraction in loan disbursement in January, according to a news release published by the OJK on Thursday. The contraction was less severe than that in December, supported by the slow growth in disbursement by state-owned banks and regional development banks.
The authority also reported that the NPL ratio stood at 3.17 percent in January, higher than the 2.76 percent in January last year.
State-owned Bank Rakyat Indonesia (BRI), which focuses on small business customers, had restructured total loans worth Rp 186.65 trillion from 2.8 million borrowers as of December, according to Aestika Oryza Gunarto, the corporate secretary. But the bank has seen a downward trend in its restructuring program for three months.
Read also: Credit guarantee to boost lending for MSMEs, but risk of bad loans haunts banks
BRI’s LAR ratio stood at 28.3 percent at the end of last year, well above the national average.
“This figure is the result of BRI’s many [national economic recovery] programs, one of which is a loan restructuring for [micro, small and medium enterprise] borrowers,” Aestika told The Jakarta Post via text message. “But BRI’s LAR is well-managed.”
Bank Permata economist Josua Pardede said Friday that the amount of restructured loans was expected to have only a small potential to rise further as the government’s COVID-19 vaccination program was expected to help start economic recovery.
Josua also said the credit risk was still “manageable” regardless of increases in the NPL ratio. With the central bank lowering its benchmark rate to a record-low at 3.5 percent and some sectors still growing, banks are expected to gain more confidence in disbursing loans.
“If demand for loans grows, the [LAR] ratio is not expected to rise,” Josua told the Post in a phone interview. “So new loans are expected to grow, perhaps consumer, working capital and then investment loans.”
Sucor Sekuritas analyst Edward Lowis said the loan restructuring program had reached its peak as most loans had only been deferred for between six and nine months. However, big banks with strong capital were expected to raise their loan provisions this year.
“Whether the LAR goes up or down, I think it will decrease this year as many restructured accounts return to normal,” Edwad told the Post in a phone interview Friday. “And whether the NPL rises, I think that is a possibility this year.”
