S&P : Credit-Risks Rising at Indonesian Banks | Outlook Data
(Insider Stories) - Standard & Poor’s report showed an aversion among small businesses to funding their expansion by assuming long-term debt is increasing Indonesian banks’ collective credit risk. The main threat to asset quality stems from increased leverage in the private sector, aggressive regulatory measures to promote economic growth, and structural weaknesses in the banking industry, S&P’s credit analyst Ivan Tan said.
The report with titled “Rising Credit Risks Could Reveal Vulnerabilities In Indonesian Banks,” showed that special-mention loans, loans up to 90 days overdue but not classified as in default, have become more ubiquitous since 2011. All these factors could undermine the ability of the private sector to service debt in the long run.
The divergence from the long-term trend suggests borrowers are “increasingly experiencing repayment difficulties”, with an increase in the special-mention loans instructive of a potentially deteriorating loan portfolio among Indonesian creditors.
The ratio of reported non-performing loans, however, declined to 1.9 percent in 2012 from 6.1 percent in 2006, partly reflecting the denominator effect of rapid loan growth. S&P’s retains its stable outlook for Indonesia’s banking sector and does not expect loan books to deteriorate in the next two years.
Tan said, the base-case scenario assumes that Indonesia’s resilient economic growth, which forecast at 6.3 percent in 2013, and prevailing low interest rates should continue to help borrowers meet their debt payments.
