How will Indonesian banks' NPLs be impacted by the end of OJK's lenient restructuring?

NPLs will remain close to 3% by the end of 2017.

Analysts at Maybank Kim Eng think the Indonesia Financial Services Authority (OJK)’s plan to lift the leniency on the quality classification for restructured loans should be positive as it could signal the OJK is confident about economic stability in the country.

"Based on our estimates, the impact to NPLs from such a change in banking policy should be limited.

Here's more from Maybank Kim Eng:

The local media reported that OJK will not extend banking stimulus, which gives a two-year leniency period for restructured loans. The stimulus will expire August 24th 2017. Going forward, the quality classification of these loans will again be based on all three pillars, instead of just one when the lenient measure was imposed. These pillars are repayment ability, business prospects, and the financial situation of the debtor.

We think by reverting back to the three pillars, OJK is signaling its confidence in economic stability, which by 1H17 had helped push banks’ total NPLs down to 2.96% from 3.1% at the beginning of 2017. We expect NPLs to remain close to 3% by YE17, supported by faster GDP growth of 5.07% for FY17F from 5.01% in 2Q17, which will be driven by the recent cut in benchmark rates