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Indonesian banks boost bad loan provisions, fret about mining sector impact

[JAKARTA] Several Indonesian big banks have sharply hiked bad loan provisions, helping push combined first-half profits to their first decline in almost a decade, as they fret about the impact of a troubled mining sector and weaker commodity prices on the economy.

State-owned PT Bank Negara Indonesia Tbk nearly tripled its provisions to 6 trillion rupiah (S$616 million) in the six months to end-June, while net profit fell 51 percent. At PT Bank Mandiri Tbk, the nation's biggest lender by assets, provisions jumped 41 per cent to 4 trillion rupiah while net profit growth slowed to 3.5 per cent from 16 per cent in the same period a year earlier. "The economy may not recover quickly, so we need to have a bigger piggy bank," Budi Gunadi Sadikin, Mandiri's president director, told reporters after its earnings last week. "That's why we don't want as much profit - it's better to have reserves." He noted the lender has significant exposure to the mining sector.

Combined first-half profits at Indonesia's 10 biggest banks fell 8.9 per cent to 37.6 trillion rupiah from a year earlier, the first fall in nine years, according to Thomson Reuters data. Data on Wednesday also showed growth for Southeast Asia's largest economy was the slowest since 2009 in the second quarter, with commodity exports weak and the government unable to push through badly needed infrastructure projects.

Teguh Hartanto, analyst at Bahana Securities, said he expects the banking sector's non-performing loan ratio to increase to 2.7 per cent-2.8 per cent this year from 2.4 per cent now.