Indonesian banks face credit risks: analysts
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Indonesian banks are facing greater credit risks, as local companies now appear to be avoiding long-term loans when expanding their businesses, says international ratings agency Standard & Poor's (S&P).
Many companies were now opting for short-term loans – defined as special mention loans that were overdue by up to 90 days but had yet to turn bad – S&P states in a report titled “Rising Credit Risks Could Reveal Vulnerabilities in Indonesian Banks”, which was released on Monday.
This trend, which has been on the rise since 2011, suggested that companies “are increasingly experiencing repayment difficulties”, S&P said.
The ratings agency warned that a sustained increase in special mention loans was a leading indicator of weakened repayment prospects or a potentially deteriorating loan portfolio.
“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 credit analyst Ivan Tan said.
“All these factors could undermine the ability of the private sector to service debt in the long run.”
S&P, nevertheless, maintained its stable outlook for Indonesian banks, citing low non-performing loans (NPL) in the banking industry, as well as the country’s robust economic growth and persisting low interest rates, which helped companies meet their debt repayments.
