It reflects the customers' higher risk profiles.
According to Moody's, Indonesian banks have reported a non-performing financing ('NPF') ratio on their Islamic assets that has far surpassed the non-performing loan ratio of their conventional loans. For Malaysian banks, the reverse is true, with the NPF ratio on their Islamic assets falling well below that of their conventional loans.
The more rapid rise in NPFs over the past two years in Indonesia's Islamic sector reflects the higher risk profile of its customers, and also suggests that credit underwriting has been weaker and likely driven by a more aggressive growth trajectory during more benign operating conditions.
"While Indonesia has a higher economic dependence on commodity sectors than Malaysia, the rise in non performing financing (NPF) ratios has been broad-based throughout various sectors of the economy."
Moody's added that the NPF ratio has risen not only in the more impacted commodity-related sectors such as mining and quarrying (NPF ratio of 7% at end-2015), but also in wholesale and retail trade (8%), manufacturing (5%), and construction (5%). The NPF ratio for non-retail corporate financing (including SMEs) increased to 5.5% at end-2015 from 3.1% at end-2013, while the NPF ratio for retail customers also increased to 2.5% from 2.0% over the same period.
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