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The Indonesian NPL situation for 2022

3 minute read


Throughout the pandemic, the non-performing loans (NPLs) of Indonesian banks were largely controlled thanks to the relief efforts provided by the central bank. Wider promotion of digital banking transformation also helped to stem the bleeding, with the 2025 Indonesian Payment System Blueprint (BSPI 2025) actively encouraging the digital economy and finance as sources of economic growth.

But with 2022 offering fresh challenges including but not limited to the war in Eastern Europe, what is the NPL situation looking like in Indonesia going into the second quarter of the year?


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How did we get here?

Compared to neighbouring countries, the COVID-19 pandemic didn’t hit the Indonesian economy quite as profoundly. This is in large part due to the already healthy fintech market in the country. Indonesia is also a country built on the back of many micro, small and medium-sized enterprises (MSMEs). In fact, MSMEs contribute around 60% of the national output and represent 43% of total employment.

They are, in essence, the backbone of job creation and wealth creation and proved far more resilient in the face of COVID than their significantly larger competitors. Still, while digital technologies helped many MSMEs to adapt to the ‘new normal’, only 13% of them had adopted the internet for marketing and delivering their products and services prior to the pandemic.

While the country seemed to weather the first wave, a fresh wave of COVID-19 infections hit Indonesia in July 2021, threatening the country’s economic recovery and increasing risks for all lenders. With further restrictions announced by the government the same month, NPL ratios rose to around 3.1% at the end of the year, up from 2.5% a year prior. Many loans were restructured to cushion the blow but the profitability of lenders was still hurt substantially.


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Where are we going?

Thankfully, Indonesian banks were quite well-placed to weather the storm, with net interest margins among the highest in Asia. Indeed, Bank BRI, which is comfortably one of the largest banks in the country, ended Q1 2022 with a profit of almost $850 million thanks to sustainable activities from MSMEs. BRI also provides sufficient reserves to anticipate future risks, with NPL Coverage of 276.0%, up from 231.17% in 2021.

Domestic economic growth remains solid and is still projected to fall around the 5.5% range by the end of the year. This is thanks to a combination of low inflation and the Bank of Indonesia normalising liquidity policy by incrementally raising rupiah reserve requirements without disrupting liquidity conditions in the banking system.

The Capital Adequacy Ratio (CAR) in the banking industry remained high in January 2022 at 25.78%, with persistently low NPL ratios of 3.10% (gross) and 0.88% (net). Bank intermediation also continued to improve in February 2022, with credit growth accelerating to 6.33%. In short, things are not looking too bad, particularly if the central bank continues to accelerate payment system digitisation. This will be helped in no small part by the relatively low banking penetration in Indonesia, as people are more likely to go digital if they are banking for the first time.


What must be done?

Of course, while things are nowhere near as bleak as they are in neighbouring countries, COVID has still had an impact on the financial sector, with NPL figures standing high at over 3% at the end of 2020. That might have been 18 months ago now and banks might have made heavy provisions for the spike in losses expected once the relief measures were withdrawn but there’s no telling yet what the full knock-on effect of the Ukraine situation will be globally.

The bulk of the responsibility falls, as ever, on the government and the central bank. Thankfully, in March 2022, the Bank of Indonesia’s board of governors agreed to hold the 7-day reverse repo rate at 3.5% to help maintain exchange rate stability and control inflation. This is in response not only to the COVID-19 pandemic but to events currently unfolding between Russia and Ukraine.

On a wider scale, however, this is little more than a bandage on a broken limb. For long term change to take hold and for NPL ratios in the country to reach pre-pandemic levels, a greater level of digital adoption is required.

The writing is already on the wall, with the government dedicated to helping more MSMEs go digital to help with the financial burdens inflicted by the last few years of instability. Cooperatives and Small and Medium Enterprises Minister Teten Masduki said in a keynote speech at the end of 2020: “Businesses that can survive and thrive during the pandemic are those that have an online presence.

He added that MSMEs need to start integrating their businesses with digital payment solutions as more and more consumers switch to cashless payments, with 75% of Indonesians using mostly digital payments in the wake of the pandemic. This is not only because digitising payments for small businesses allows them to have transaction records that can be used to apply for loans but because a digital paper trail is a lot easier to navigate than a physical one.

Digital transformation is the only clear solution that gives consumers the agency to act on their debts and lenders the knowledge to make alterations to their practices that have a legitimate impact. If you’re a lender struggling with NPLs in the region today, upgrading your digital acumen might just be the answer.


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Written by: Marios Siappas

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