Indonesia: BNI profit down 64% in first nine months as risky loans soar

Bank Negara Indonesia’s (BNI) net profit fell sharply in the first nine months of the year due to higher provisioning following a steep increase in risky loans.

The publicly listed bank’s profit was down almost 64 percent at Rp 4.32 trillion (US$294.5 million) as of the end of the third quarter from Rp 11.94 trillion recorded in the same period last year.

“[The plunge in profit] was caused by our conservative provisioning measure, which raised our coverage ratio to 206.9 percent as of September,” BNI consumer business director Corina Layla Karnalies explained during an online press briefing on Wednesday.

The higher provisioning was necessary as the state-controlled bank’s loans at risk (LAR) rose significantly as of the end of the third quarter. The LAR is a more conservative definition of bad loans than non-performing loans (NPL), as the former takes into account loans in all five loan repayment categories, including good loans resulting from credit restructuring.

BNI’s LAR rate, excluding loans that were restructured amid the pandemic, rose to 12.1 percent from 8.6 percent in the same period last year. However, the figure soared to 28.7 percent when including loans that were restructured due to COVID-19, according to the bank’s presentation material.

The coronavirus outbreak in the country has disrupted business activity and resulted in a shrinking economy and weakening purchasing power. Indonesia’s gross domestic product (GDP) shrank 5.32 percent year-on-year (yoy) in the second quarter as consumer spending and investment plunged.

Corina said that, as of September, the bank had restructured loans totaling Rp 122 trillion from 170,591 debtors, or about 22.2 percent of the bank’s total disbursed loans. Most of the restructured loans were for debtors engaged in the sectors of trade, services, manufacturing and hotels and restaurants.

Although the Financial Services Authority (OJK) extended the loan assessment relaxation by another year to 2022, Corina said she expected the loan restructuring rate to slow in the near future.

“Restructured loans have shown signs of slowing after June, and we believe that the need for loan restructuring will continue to slow in the future,” she said, expressing hope that the extension would provide more room for banks to manage their portfolios in a prudent manner and allow debtors hit by the pandemic to have more time to recover.

Aside from the rising LAR figure, BNI’s NPL ratio stood at 3.6 percent as of September, double the 1.8 percent recorded in the corresponding period last year.

Most of the bad loans came from the medium-sized business segment, where the NPL ratio reached 8.4 percent as of September. Meanwhile, the NPL in the corporate segment also increased significantly during the period, namely to 2.9 percent from 1.1 percent in September 2019.

“This increase has been attributed to a declining performance of corporate debtors due to the pandemic, particularly those in the manufacturing sector,” technology and operations director YB Hariantono said.

On top of the higher provisioning, BNI also saw a 0.8 percent yoy decline in net interest income to Rp 26.65 trillion in the first nine months of the year.

BNI, however, was still able to record growth in several aspects of its performance. Fee-based income went up by 24.7 percent yoy to Rp 3.11 trillion during the period due to higher digital banking transactions. Its third-party funds also jumped 21.4 percent yoy to Rp 705.09 trillion.

Its loan disbursement slightly grew by 4.2 percent yoy in September, well above the country’s banking industry growth of 0.12 percent.

CSA Institute analyst Aria Santoso told The Jakarta Post that the high provisioning might impact BNI’s performance in the short term, as it would further lower the bank’s bottom line until the end of the year.

“But this strategy is the best step the bank could take for the long term as a precaution for a deterioration in loans,” he said via text message on Wednesday.

He also expected that the bank’s performance would slowly recover next year amid the OJK’s decision to extend the loan assessment relaxation program and the ongoing pandemic, as it would give the bank more time to manage its portfolio.

BNI’s shares, traded at Indonesia Stock Exchange (IDX) under the code BBNI, have lost 39.62 percent of their value since the beginning of the year. They closed on Tuesday, prior to the long weekend, at Rp 4,740 apiece or 2.27 percent lower than the previous close.