Mining in Indonesia: Concern about High Non-Performing Loan Ratio
The non-performing loan (NPL) ratio in Indonesia's mining and excavation sector has risen drastically over the past year. Moreover, there seems few room for an improvement of the NPL ratio in this sector on the short term because mining and excavation companies are expected to remain amid tough conditions in the remainder of the year. The NPL ratio is a key indicator for measuring bad loans.
Aslan Lubis, Executive Analyst at the Department for Development of Supervision and Crisis Management within the Financial Services Authority (OJK), said Indonesia's mining sector is now the biggest contributor to the NPL ratio in Indonesia's banking sector.
Per May 2017 the NPL ratio in Indonesia's mining sector surged to 7.72 percent. Meanwhile, a survey of Indonesia's central bank (Bank Indonesia) predicts slowing activity in the nation's mining and excavation sector in the third quarter of 2017 with a weighted net balance (in Indonesian: Saldo Bersih Tertimbang, SBT) at -3.15 percent in Q3-2017, weakening from -1.63 percent in the preceding quarter. Another indicator shows that the actual utilization of Indonesia's mining production capacity is low at 75.04 percent in the second quarter of 2017. This low figure implies demand for mining output has remained bleak thus limiting miners' earnings and making it more difficult - or impossible - to repay debt to banks.
Bank Negara Indonesia (BNI), the fourth-largest bank of Indonesia, saw its NPL ratio in the corporate mining sector rise to 8.5 percent, its NPL ratio in the medium-sized mining businesses to 5.8 percent, and the NPL ratio in the small-sized mining businesses to 4.7 percent in the first half of 2017.
Bob Ananta, Director of Operations and Planning at BNI, said the bank's high NPL ratio in the mining segment is the result of low commodity prices in 2015 when crude oil even fell below USD $30 a barrel. Therefore, BNI now focuses on improving the quality of its credit portfolio in the mining segment by restructuring credit, while selectively adding new credit in this sector. Meanwhile, it is hoped that commodity prices will rise, which will make it immediately easier for miners to fulfill their obligations toward banks.
Overall, covering all segments, BNI will guard to keep its NPL ratio below 3 percent and therefore investors and shareholders of BNI are not too alarmed. So far this year shares of BNI have surged 28.05 percent to IDR 7,075 a piece.
Stock Quote Bank Negara Indonesia - BBNI:
Meanwhile, both Bank Central Asia (BCA) and Bank Rakyat Indonesia (BRI) said they have also become more careful and selective in terms of credit disbursement in the mining sector and other commodity-related sectors as both banks see significant risks as long as commodity prices not improve sharply. BRI added, however, that it is not too exposed to bad loans in the mining sector because mining credit only accounts for 5 percent of total outstanding credit in the first quarter of 2017.
Banks listed on the Indonesia Stock Exchange (IDX) have been good stock choices so far this year. Shares of BCA have risen 18.39 percent, while shares of BRI have surged 25.91 percent so far in 2017.
Stock Quote Bank Central Asia - BBCA:
Stock Quote Bank Rakyat Indonesia -BBRI:
Bad Loans in Indonesia's Mining and Excavation Sector:
| 2013 |
2014 | 2015 | 2016 | April 2016 |
April 2017 |
|
| Amount of Credit (in trillion rupiah) |
126.82 | 141.82 | 125.27 | 126.33 | 117.57 | 124.78 |
| Amount of Bad Credit (in trillion rupiah) |
1.92 | 3.57 | 5.58 | 9.04 | 6.05 | 9.33 |
| NPL Ratio (%) |
1.51 | 2.52 | 4.12 | 7.15 | 5.14 | 7.48 |
Source: Kontan