‘Indonesian banks’ non-performing loan problem likely to worsen’

JAKARTA: The non-performing loan (NPL) problem at Indonesia’s banks is likely to get worse, keeping economic growth below six per cent over the coming two years as lenders hold back from boosting credit, according to the head of the country’s deposit insurance agency.

“We haven’t seen the bottom for NPLs because commodity prices are still volatile and we see uncertainties that can affect our domestic economy,” said Destry Damayanti, commissioner at the agency known as LPS, here, last week.

“Banks are still in consolidation to resolve bad debts.”

The bad loan issue is proving to be a weak spot in Southeast Asia’s largest economy, a factor behind the decision by President Joko Widodo to revise his projection for next year’s growth to 5.6 per cent, toward the lower end of a previous range of 5.4 per cent to 6.1 per cent.

The gross NPL ratio has hovered above three per cent since NPL ratios predicted by Fitch Ratings for

larger banks the middle of last year, matching levels seen in 2011 and capping bank loan growth at 7.9 per cent last year, the slowest pace since 1999.

Fitch Ratings said last month it is maintaining a negative outlook on Indonesia’s banks, as it expects asset quality and profitability to remain under pressure during the next few quarters.

Fitch predicted that the larger banks’ NPL ratios will remain at an average three per cent.

LPS, tasked with protecting client deposits in the event of a bank insolvency, has a war-chest of about 75 trillion rupiah (RM24.8 billion). Bloomberg