Indonesian banks with higher NPLs warned of negative surprises ahead

Asset quality issues may be raised for some banks.

According to Maybank Kim Eng, Indonesian banks' NPLs are at an all time low, benefiting from sustained low interest rates and a robust economy.

The banks have also been relatively insulated from external shocks partly due to their low exposure to SME lending, which is more vulnerable to economic downturns.

Here's more from Maybank Kim Eng:

Higher interest rates and the recent increase in fuel price are expected to spur inflation, which may raise asset quality issues for some banks.  We think there could be some negative surprises for banks with higher NPLs and lower loan loss coverage.

We also think the banks that experience excessive credit growth in a strong economy are those which are likely to see an outsized increase in credit costs when the economy slows down.

Banks that aggressively expanded into new sectors are experiencing asset quality pressure. While the recent increases in NPLs are not cause for concern, banks will be negatively affected if defaults start to increase.

Accordingly, Mandiri has since decided to contain consumer lending and reduce its exposure to riskier lending.