Bank Indonesia on alert as bad loans increase

Bank Indonesia on alert as bad loans increase

Bank Indonesia (BI) will closely monitor the increase of bad loans, particularly in four business sectors, as they are slowly approaching the benchmark set by financial regulators.

In a statement issued on Friday, the central bank said that by the end of July it had detected growing non-performing loans (NPL), especially in the construction, mining, trading and social services sectors.

In July, the NPL ratios climbed to 4.43 per cent and 3.09 per cent in construction and mining, respectively, from 4.24 per cent and 2.49 per cent recorded a month before.

Meanwhile, in trading, the NPL ratio surged to 3.06 per cent in July from 2.92 per cent in June, and it stood at 2.96 per cent in July for the social services sector, up from 2.48 per cent in the previous month.

BI, along with the Financial Services Authority (OJK), sets the NPL ratio benchmark at 5 per cent.

BI deputy governor Halim Alamsyah said the central bank would coordinate with the OJK to monitor the four sectors to prevent increasing bad loans from affecting other business segments.

"It seems that loans under the collectability 2 category are tending to rise. We are now trying to find out if it's only temporary," he told reporters.

At present, regulators classify loans according to their quality or collectability. Loans under collectability 1 or "pass" are those with on-time payments and loans under collectability 2 or "special mention" are those with 90 days in arrears.

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