Indonesia non-performing loans stand at 3.2 pct in November, highest since early-2010

Indonesia non-performing loan ratio remained at 3.2 percent as of November 2016, standing at the level similar since July last year. At this level, the non-performing loan was highest since early 2010, but, compared to the early prints of 2016, there are now fewer concerns over the issue.

Firstly, non-performing loan growth has slowed to about 26 percent y/y in the second half of 2016, compared to 28 percent and 34 percent in the first half of 2016 and 2015 respectively. The recent rise in commodity prices is a positive, given that the bulk of troubled loans since 2013 had come from the commodity sector, especially oil and gas. The growth of non-performing loan should continue to moderate this year, reported DBS bank in its research note.

What has kept the non-performing loan ratio elevated was poor loan growth last year. But loan growth has ticked up to 8.5 percent y/y in November 2016. And we reckon that it will continue to rise this year, albeit still at a gradual pace. Note that Bank Indonesia expects loan growth at 10-12 percent this year. The key is to watch how investments in the private sector will fare this year, and thus far, signs from imports data are pretty encouraging, they added.

The DBS bank in its research note mentioned that the non-performing loan ratio could still tick up to about 3.5 percent sometime this year before easing back to 3 percent by the year-end. This is if we assume loan growth at 11 percent this year and non-performing loan growth to moderate at the current pace. It is more likely, however, that the pace of moderation in non-performing loan growth will accelerate this year (barring any further negative shock to oil prices).

Under the latter conditions, the non-performing loan ratio might have peaked at 3.2 percent. Either way, getting back to the 3.5-4.0 percent seen in 2009 is highly unlikely. The worst of the non-performing loan issue seems to be behind us now.