Indonesian banks set to benefit from loan growth and ample liquidity – S&P Global
According to S&P Global Ratings, Indonesian banks should benefit from an expected uptick in loan growth and stronger liquidity positions built during the COVID-19 pandemic.
Loan growth in Indonesia is likely to be between 8% and 10% in 2022, compared to 5.2% in 2021 and 6.1% in 2019, Ratings analysts said in a webinar on September 8. Profitability, as measured by return on assets, will also improve in 2022 due to lower bad debt provisions.
On the one hand, COVID-19 had a negative impact on the growth of Indonesian banks, but their capitalization and liquidity actually strengthened over the period, said Ivan Tan, head of the rating agency. and Principal Analyst for South and Southeast Asian Financial Institutions.
The capital base of Indonesian banks improved to 24.1% in 2021, from 22.2% in 2020 and 21.9% in 2019. The country’s banks are also abundant in liquidity, with Ratings estimating an overall loan /deposits by 80% in 2022. The rating agency also expects banks’ capital base to reach around 22% in 2022.
“We believe the cash accumulated over the past few years will be used for loan growth,” Tan said.
Indonesia’s economy grew 5.44% year-on-year in the June quarter, according to government data, outperforming several peers in the region. The International Monetary Fund projects that economic growth in the Asia-Pacific region will slow to 4.2% in 2022, from 6.5% in 2021. According to government estimates, Indonesia’s GDP is expected to grow by 5.3 % in 2022 and 5.2% in 2023.
Indonesian banks also have some of the The highest net interest margins in Asia-Pacific. The key profitability indicator was 3.39% in the first half, according to data from S&P Global Market Intelligence.
Yet some lingering risks remain. About 9.1% of the country’s loans are still classified as under moratorium or restructuring, indicating that COVID-19 is still a drag on Indonesia’s banking system, Tan said.
The moratorium on loans in certain sectors will probably be extended beyond the March 2023 deadline, according to local media. Sectors, such as tourism and food and beverage, are still struggling to recover from the negative effects of the pandemic, Ratings said.