Bank CIMB Niaga signals bad loans have peaked

This comes after a rebound in commodities

JAKARTA: PT Bank CIMB Niaga’s chief signalled that bad loans at Indonesia’s second-largest private-sector bank may have peaked as a commodities rebound helps troubled resources companies repay their debts and as the firm focuses on a new group of more credit-worthy customers.

While the lender, majority owned by CIMB Group Holdings, will set aside an above-normal amount of funds to cover distressed assets this year, those provisions “should be trending in the right direction” in the future, president director Tigor M Siahaan (pic) said in an interview at his office in South Jakarta last week.

The lender’s gross nonperforming loans, or NPLs, jumped to 3.9% in 2016, the highest since 2014, exchange filings show.

Bad loans at Indonesian banks have increased in the past three years after a rout in commodity prices cut earnings of miners and plantation companies, reducing their ability to repay debt.

The firms have been forced to increase provisions and loan growth has halved over the past decade to 10% last year.

CIMB Niaga’s loan expansion is expected to remain below industry growth of about 10% to 12% this year, Siahaan said.

The bank started offering automated teller machine services to its customers in 1987, the first in Indonesia to do so.

A rebound in prices of coal to copper and palm oil will not only benefit the producers but also industries that support commodities companies, including financial services, said Siahaan, who took over as the chief executive of Jakarta-based CIMB Niaga in 2015 after 20 years at Citigroup Inc.

The Bloomberg Commodity Index, a gauge of raw materials including copper, gold and soybeans, advanced 11% last year, the first annual increase since 2010.

“Things are improving a bit in terms of commodity prices,” Siahaan said.

“If this continues, we are hopeful that not only the mining and commodity sector is going to put up a much better showing, but also the peripheral industries and supporting industries around it.”

CIMB Niaga posted its first annual increase in net income in three years in 2016, despite setting aside 4.97 trillion rupiah (US $372mil) against bad loans. The lender expects to lower its funding costs to below 2.5% this year from about 2.75% last year, Siahaan said.

The bank has moved away from commodities lending to focus more on clients and markets with “more robust credit-worthiness,” he said. “It is going to be a much robust portfolio in the future.”

The lender is seeking to provide financing to more infrastructure companies and their suppliers, and small-to-medium enterprises, Siahaan said.

CIMB Niaga shares gained 0.5% as of 9:25 am yesterday in Jakarta.

The shares have rallied 17% this year, extending a 42% advance in 2016, as some analysts start to build in a bad-loan recovery into their forecasts.

Gross NPLs may decline to 3.5% this year and fall further to 3.1% in 2018, Igor Nyoman Putra, an analyst at PT BCA Sekuritas, said in a report on Feb 21.

Weak credit demand in Indonesia will likely last a few more quarters before improving with the economy, and the largest lenders are likely to endure an increase in NPLs in the near term before loan growth and asset quality recover, according to Bloomberg Intelligence. — Bloomberg