by Elisa Valenta
This year would be a tough year for the banking industry, as the coronavirus pandemic caused an economic downturn across the country. However, during the first quarter of this year, seven biggest lenders in Indonesia, which includes in bank BUKU IV (banks with core capital of Rp30 trillion), posted a positive result.
State-owned lender PT Bank Rakyat Indonesia (BRI) posted flat first-quarter profit as higher interest income was offset by a steep rise in loan impairment as COVID-19 affected business activities. The quarter's consolidated net profit was Rp8.16 trillion, a 0.37% drop from the same period last year.
Another state-owned bank PT Bank Mandiri managed to book Rp 7.23 trillion of net profit, which fell 0.01% from the same period last year. Meanwhile, the biggest private lender by market value, PT Bank Central Asia (BCA), booked Rp 6,6 trillion in net profit in the first quarter this year, an 8.6% increase compared to the same period last year. The profit was boosted by the rise in business loans and operating income growth.
Moody's Investors Service said in a recent report that Indonesian banks will see their asset quality and profitability deteriorate. Still, their capital and liquidity will remain strong, providing ample buffers to absorb financial stress.
Credit costs will increase sharply in 2020 as asset quality weakens. Banks will continue to identify weak borrowers and grow provisions for them proactively despite regulatory forbearance on provisioning. At the same time, net interest margins (NIMs) will contract because of monetary easing, slowing loan growth, and interest discounts and waivers as part of loan restructuring programs.
"Restructured loans in Indonesia have grown significantly since authorities relaxed rules for debt restructuring in March 2020 to provide financial relief for those impacted by the crisis," said Tengfu Li, an analyst at Moody's.