Sunday, 16 June 2024

Top Indonesian banks’ net profit slid 39% as bad loans rose

5 min read

By Wendy Weng

The financial results of BUKU IV banks, the top banks by core capital in Indonesia, weakened amid the COVID-19 crisis. Banks experienced a contraction in net loans and set aside more provisions.

  • Net profit of Bank Negara Indonesia (BNI) and Bank Danamon dropped the most
  • Bank Central Asia (BCA) saw the smallest decline in net profit, and surpassed Bank Rakyat Indonesia (BRI) as the bank with the largest net profit in Indonesia
  • BUKU IV banks reported higher non-performing loan (NPL) ratios despite loan restructuring incentives

The seven BUKU IV (Commercial Bank Business Activity IV) banks in Indonesia reported a 39% drop in aggregate net profit from IDR 115 trillion ($8.1 billion) in 2019 to IDR 70 trillion ($4.8 billion) in 2020. These BUKU IV banks, or the top banks by core capital include Bank Rakyat Indonesia (BRI), Bank Central Asia (BCA), Bank Mandiri, Bank Negara Indonesia (BNI), Bank CIMB Niaga, Bank Danamon and Bank Permata. Panin Bank, the other BUKU IV bank, saw its net profit fell by 3.1% year-on-year (YoY) in the first nine months of 2020.

Commercial banks in Indonesia are divided into four categories, depending on the amount of the banks’ core capital. The BUKU IV category includes banks with core capital of more than IDR 30 trillion ($2.1 billion). These eight BUKU IV banks accounted for 64% of the total assets of commercial banks in the country. Bank Permata has officially become a BUKU IV bank in January 2021, as the integration with Bangkok Bank’s branches in Indonesia boosted its capital.

Provisions rise while lending shrinks

The sharp decline in net profit was largely due to more provisions, as the aggregate pre-provision operating profit of these seven banks only went down by 4% in 2020. For instance, the provisions BNI made grew by 156% in 2020. Although its operating income went up slightly, its net profit plummeted by 79%. Bank Permata saw its net profit slump by 52%, but its pre-provision operating profit grew by 23.7%.

Meanwhile, weak loan demand amid the pandemic also contributed to the decline. The aggregate net loans of these seven banks went down by 3% in 2020, a reversal from the 9% growth posted in 2019. Among these banks, Bank CIMB Niaga and Bank Danamon recorded the largest decline in net loans, at 13.5% and 7.3% respectively. The aggregate net interest income and operating income of these seven banks fell by 0.5% and 0.2%, respectively.

BUKU banks with the largest and smallest drop in net profit

Among these banks, BCA experienced the smallest decline in net profit in 2020, despite the 152% increase in the provisions. The bank recorded a net profit of IDR 27.1 trillion ($1.86 billion) in 2020, a 5% decline from IDR 28.6 trillion ($2.02 billion) a year earlier. BCA surpassed BRI to become the bank with the largest net profit in Indonesia, as the latter’s net profit dropped by 46%. Although BCA’s net fee and commission income decreased by 3.3%, the bank witnessed a 7.3% increase in its net interest income, which accounted for 72% of total operating income.

BNI and Bank Danamon saw the largest drop in net profit in 2020. Bank Danamon registered a 75% slide in its net profit, and it is the BUKU IV bank with the largest drop in operating income. Its net interest income and net fee, and commission income decreased by 5.9% and 4.5% respectively, hence, its operating income dropped by 14%.


Swelling bad loans

Indonesia’s Financial Services Authority (OJK) data showed that loan restructuring reached IDR987.5 trillion ($68 billion) from 7.94 million debtors as of February 8, 2021.
OJK established the loan restructuring incentives in March 2020, which was set to last until March 2021 but was extended for a year. Without the incentives, the decline in banks’ net profit would be even more significant in 2020.

The NPL ratio of BUKU IV banks deteriorated in 2020, despite the loan restructuring programme. BNI’s gross NPL ratio weakened from 2.3% to 4.3%, Bank Mandiri, from 2.3% to 3.1%; BRI, from 2.6% to 2.9%; and BCA, from 1.3% to 1.8%. The NPL coverage ratio improved, as banks made higher provisions. BCA’s NPL coverage ratio went up from 189% in 2019 to 261% in 2020; Bank Permata from 133% to 239%, Bank Mandiri, from 144% to 229% and BRI, from 77% to 90%.

The OJK has extended the loan restructuring program until March 2022. Wimboh Santoso, Chairman of OJK's board of commissioners, said that the extension of this restructuring program serves as an anticipatory step to provide support against the declining quality of borrowers seeking restructuring.

With the extension, banks will be able to keep the NPL ratio below the regulator's healthy threshold of 5% in 2021. The pace of loan restructuring has been gradually declining and lending growth is expected to improve as the economy recovers. However, banks will continue to face significant profit pressure as the recovery is expected to be limited in 2021.

Keywords: Profit, Net Loans, NPL, Profitability, Covid-19
Institution: OJK, Bank Rakyat Indonesia, Bank Central Asia, Bank Mandiri, Bank Negara Indonesia, Bank CIMB Niaga, Bank Danamon And Bank Permata, Panin Bank
Country: Indonesia
Region: Southeast Asia
People: Wimboh Santoso
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