The ratio of non-performing loans (NPLs) for mortgages in Indonesia is showing a worrying trend. Data from the Financial Services Authority (OJK) revealed that the property NPL ratio stood at 2.4% in December 2023, higher than the previous year's 2.1%, as well as 2.3% and 2.2% at the end of 2020 and 2021, respectively.
Meanwhile, Bank Indonesia (BI) data showed that the property NPL ratio reached 2.63% in January 2024, an increase from the previous month's 2.47% and even higher than January 2023's 2.46%. This NPL ratio exceeded the levels seen during the COVID-19 pandemic in 2020.
Lani Darmawan, President Director of PT Bank CIMB Niaga Tbk. (BNGA), attributed this trend to the era of high-interest rates following the COVID-19 pandemic. As a reference, Bank Indonesia raised its benchmark interest rate by 250 basis points (bps) to 6% over 15 months, from July 2022 to October 2023.
Lani added that the high NPL trend was also driven by robust credit growth after the pandemic. However, she considered the rise in mortgage NPLs to be within reasonable limits. "We consistently apply a prudent credit process, robust portfolio management, and effective cross-selling as part of the selection process," Lani told CNBC Indonesia on Thursday (14/3/2024).
Lani further mentioned that CIMB Niaga managed to improve its mortgage quality, with the ratio decreasing to 2% in 2023 from the previous 2.4%.
According to Setiyo Wibowo, Risk Management Director of PT Bank Tabungan Negara Tbk. (BBTN), the NPL ratio is typically higher at the beginning of the year compared to the end of the year. "The NPL in January is usually higher than in December, it's a kind of annual cycle where banks tend to be more active and aggressive in collections at the end of the year to improve their book performance," Setiyo explained to CNBC Indonesia on Thursday (14/3/2024).
He also stated that BTN, a state-owned bank focused on housing finance, managed to maintain the quality of its mortgage assets with an NPL ratio of 1.9% in January 2024. Setiyo mentioned that this quality, better than the industry average, is on a trend to continue improving.
Indonesia's largest private bank, PT Bank Central Asia Tbk. (BBCA), also succeeded in keeping its mortgage NPL ratio low compared to the industry. BCA's President Director, Jahja Setiaatmadja, revealed that BCA's mortgage NPL stood at 1.1% as of December 2023.
"Prudent loan disbursements policy," Jahja told CNBC Indonesia when asked how this was achieved, on Thursday (15/3/2024). He also expressed confidence that BCA's asset quality and mortgage NPL would remain stable in the future. "BCA's mortgage NPL is not increasing," Jahja added.
Another state-owned bank, PT Bank Mandiri (Persero) Tbk. (BMRI), stated that it has avoided the negative property NPL trend in the industry. Without providing specific figures for the current mortgage NPL level, BMRI's President Director, Darmawan Junaidi, mentioned that the trend continues to improve.
"The NPL trend at Bank Mandiri continues to improve. The key is the implementation of best practices in Risk Management," Junaidi told CNBC Indonesia on Thursday (14/3/2024). By the end of 2023, Bank Mandiri's bank-only NPL had decreased by 86 basis points (bps) annually to 1.02%.
However, another state-owned bank, PT Bank Negara Indonesia (Persero) Tbk. (BBNI), acknowledged that it might have been affected by the industry trend. "It seems that BNI's NPL is relatively stable, with only a slight increase," said BNI's President Director, Royke Tumilaar, when contacted by CNBC Indonesia on Thursday (15/3/2024). He did not elaborate further.
BNI's gross NPL stood at 2.14% in 2023, down from 2.81% the previous year, while its net NPL was at 0.61% throughout 2023, up from 0.49% in 2022.
Separately, Trioksa Siahaan, Head of Research at the Indonesian Banking Development Institute (LPPI), attributed the worsening property NPL trend to the economic downturn for the lower-middle-class population. Despite Indonesia's overall economic growth of around 5%, the impact has not been evenly distributed.
"In my view, this trend indicates an economic decline for the lower-middle class, which has impacted the increase in NPLs. While our economy is growing, it seems to have mainly benefited the upper-middle class, while the lower-middle class has yet to experience the impact evenly," Trioksa said.