There was no storm, no sudden change. All reports indicate that the banking sector is in good shape. Non-performing loans have reached a record low. Even the bank’s loan at risk (LAR), which has long haunted them, now resembles pre-COVID-19 levels. The latest Financial Services Authority (OJK) Commissioner Board meeting affirmed the banks’ strong and stable condition. Normal bank intermediation functions are performing impressively, evidenced by profits, dividend distributions, and significant bonuses and incentives. Meanwhile, restructuring efforts continue despite the government’s declaration of pandemic to endemic status.
Sumber : Istimewa
There was no storm, no sudden change. All reports indicate that the banking sector is in good shape. Non-performing loans have reached a record low. Even the bank’s loan at risk (LAR), which has long haunted them, now resembles pre-COVID-19 levels. The latest Financial Services Authority (OJK) Commissioner Board meeting affirmed the banks’ strong and stable condition. Normal bank intermediation functions are performing impressively, evidenced by profits, dividend distributions, and significant bonuses and incentives. Meanwhile, restructuring efforts continue despite the government’s declaration of pandemic to endemic status.
Additionally, the Financial System Stability Commit[1]tee (KSSK) meeting results indicate the financial sector is stable and under control. Indonesia’s economic growth in Q1 2024 remains at 5.11%. Achieving over 5% economic growth post-COVID-19 is seen by the government as a re[1]markable feat amidst global economic downturns
Even though the exchange rate has reached Rp16,300 per US dollar, the rupiah remains resilient, as stated by Bank Indonesia (BI) and President Joko Widodo at the State Palace recently. The rupiah is still considered strong compared to several other currencies. Officials assert that everything is in good order, including the Bank Indonesia consumer confidence survey results.
The extension of the credit restructuring program raises questions. The Financial Services Authority (OJK) had initially ended it in late March 2024. Who benefits from this unexpected policy amidst reports of stable banking, financial, economic, and monetary conditions? The “report card” appears rosy.
Whom does the government support? State-owned banks that appear “strong,” or risky debtors, or perhaps small debtors under the People’s Business Credit (KUR)? Or could there be hidden beneficiaries, such as large debtors, taking undue advantage of the credit extension?
President Jokowi has requested the relaxation of COVID-19 impacted credit restructuring be extended until 2025. Originally set to expire in March 2024, the policy was first implemented in March 2020 due to the COVID-19 pandemic. According to the Coordinating Minister for Economic Affairs, Airlangga Hartarto, at the Presidential Palace Complex, Central Jakarta, Monday (24/6/2024), the President has instructed that the restructuring of COVID-19 impacted credits, due to mature in March 2024 is proposed to be deffered to 2025.
Airlangga stated that extending this relaxation is necessary to prevent banks from being burdened with loss provisions due to defaulted KURs. According to the Minister, this extension will reduce the banking sector’s burden of provisioning for KUR-related losses. The next question is whether only KURs, and not large debtors, will benefit as hidden beneficiaries?
It remains a mystery. A paradox. Nevertheless, whatever the case, this government policy feels peculiar. It was openly proposed without prior KSSK meeting mechanisms that usually affirm the stable condition of the financial sector. The extension of this program seems poorly planned at the lower levels.
Honestly, the credit restructuring program implemented during COVID-19 was a middle path to save banks from collapse due to bad loans. This OJK program deserves recognition. However, if restructuring continues indefinitely, it may create moral hazards on both the banking and debtor sides. On the banking side, if LAR is categorized as performing, banks may avoid making provisions, which is a flawed logic. LAR with a collectability grade of 1 is a logical consequence of restructuring policy relaxation.
On the debtor side, this could induce moral hazard as debtors postpone payments (under the relaxation program), passing the cost burden onto banks. Such delays could lead to increased Non-Performing Loans (NPLs) post program expiration.
Persistent NPL resolutions will result in large Asset Management Companies (AYDA) acquisitions. Selling under current market conditions may incur significant discounts, which would disadvantage banks. Therefore, relaxing AYDA penalties, as their size increases, is also necessary. This relaxation aims to prevent banks from selling at significant discounts.
Another approach for banks engaging in these relaxations should be to refrain from blindly distributing dividends before revenue is properly accrued. Thus, the practice of celebrating large profits, bonuses, and incentives without adequate provisions should cease. No more significant profits at the expense of reserves.
Banks appearing to thrive with substantial profits may actually be sitting on a ticking time bomb. What motivates them to achieve these profits by reducing reserves? Even a first-semester banking academy student knows it’s for shareholder applause and of course, large bonuses and incentives from profits ignoring reserves.
The extension of this credit restructuring program remains shrouded in mystery. Particularly amidst repeated affirmations by authorities that our economy is sound. The rosy banking report card doesn’t quite reflect reality, espe[1]cially if the government continues to assist with program extensions. Let’s avoid hidden beneficiaries, both from the banking and debtor sides.
Additionally, the Financial System Stability Commit[1]tee (KSSK) meeting results indicate the financial sector is stable and under control. Indonesia’s economic growth in Q1 2024 remains at 5.11%. Achieving over 5% economic growth post-COVID-19 is seen by the government as a re[1]markable feat amidst global economic downturns
