Banks’ profits to improve

January 24, 2017, 12.49 PM  | Reporter: Galvan Yudistira, Yuwono Triatmodjo
Banks’ profits to improve


JAKARTA. Banks’ profitability ratio in this year is predicted to improve in this year. The improvement would be driven by the increase in profit, following the improvement in non-performing loan (NPL) ratio.

Head of Commissioner Board of the OJK (Financial Services Authority) Muliaman D. Hadad mentioned that the bank’s profitability ratio, which includes return on asset (ROA) ratio and return on equity (ROE) ratio will improve in this year, following the credit allocation that is predicted to grow by 9%-11%. Let alone, some banks have prepared some strategies to boost non-interest rate revenues in this year.

During the recent the years, the banking sector recorded ROA at less than 3%. The high NPL ratio, which had caused economic slowdown, had forced the banks to allocate higher provisions. This had subsequently reduced the banks’ profits.

Head of Economic Risks and Financial System Group at Deposit Insurance Agency (LPS) Dody Arifianto estimates that the banks’ ROA in this year will be at 2.5%. To date, the ROA is less than 3%. However, this is higher than the ROA in November 2016 as much as 2.37%.

“This will be caused by the trend of decline in credit interest rate and the NPL ratio, which is potentially to be lower than the last year,” Dody said. The lower credit interest rate will drive credit growth. LPS predicts that credit will grow by 9% in this year.

Corporate Secretary of Bank Central Asia (BCA) Jan Hendra is optimistic that BCA will book better ROA in this year. The bank targets to have a more than 3% ROA.

Financial Director of Bank Rakyat Indonesia (BRI) stated that the ROA of BRI in 2016 was lower compared with the last five years. “In general, the reduction was caused by the increase of NPL ratio,” he said. However, Haru is optimistic that BRI profitability will improve in 2017.

Analyst at Mandiri Sekuritas Tjandra Lienandjaja and Priscilla Thany in their research, which was published on 11 January 2017, mentioned that the ROA of BRI will still be pressured by NPL ratio burden. The coverage ratio of BRI in 2017 is potentially to grow by 160%. In 2016, the coverage ratio was assumed to be 155% to reduce the NPL level from 2.3% to 2.1%.

During the same period, BRI credit is predicted to grow by only 14.4%, while the credit growth assumption in 2016 was 14.6%.

(Muhammad Farid/Translator)

Editor: Yudho Winarto

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