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Indonesia's bad loans expected to rise by year end

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Indonesia's central bank estimated bad loans would rise by the end of this year to 2.4 per cent of outstanding loans, up from 1.8 per cent at the end of 2013, but a level the bank still considered manageable, an official said on Tuesday.

[JAKARTA] Indonesia's central bank estimated bad loans would rise by the end of this year to 2.4 per cent of outstanding loans, up from 1.8 per cent at the end of 2013, but a level the bank still considered manageable, an official said on Tuesday.

Bank Indonesia expected annual loan growth to register its slowest pace since 2010, at 11 per cent to 12 per cent, or just over half of last year's pace of 21.4 per cent.

Distribution of loans slowed considerably after Bank Indonesia tightened monetary policy from June to November 2013.

As a result, Southeast Asia's largest economy posted its slowest gross domestic product (GDP) growth in five years in the third quarter, at 5.01 per cent.

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The central bank raised its benchmark interest rate again in the middle of last month, to 7.75 per cent, after the government hiked fuel prices. "We expected a rise in non-performing loans (NPL) because of the sharp drop in economic growth and in commodity prices,"Darsono, Bank Indonesia's executive director for macro prudential policy, told reporters. "Companies' performance is still resilient. We will still be able to maintain NPL under control," he said, adding that Bank Indonesia's threshold level for NPL is 5 per cent.

Bank Indonesia forecast bad loans to drop in per centage terms next year to 2 per cent, on better gross domestic product growth boosted by investment in infrastructure promoted by the new government, Darsono said.

Bank Indonesia estimated GDP growth at 5.1 per cent for 2014 and 5.4 per cent to 5.8 per cent next year.

REUTERS

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