The Indonesian finance and leasing industry will continue to face a challenging operating environment despite a gradual improvement as coronavirus-related restrictions were eased in June 2020, Fitch Ratings said in a statement.
The economic fallout from the pandemic resulted in a significant rise in asset restructuring, weakening asset quality, declining receivable volumes and reduced profitability, the credit agency reported.
In a statement is said: “These pressures drive our negative sector outlook for Indonesian finance and leasing companies. The Financial Services Authority allowed companies to categorise receivables restructured due to the pandemic as ‘current’ rather than ‘non-performing’ from end-April.”
Fitch reported that restructuring surged in the second quarter of 2020 with up to 24% of industry receivables amended as of end-June, though the increase in restructured receivables slowed to 13% in July from a month earlier after June’s 78% surge.
The industry’s non-performing financing (NPF) ratio more than doubled to 5.2% (end-2019: 2.4%), while industry receivables contracted by 8.4% year-on-year in the first half of 2020.
Fitch Ratings expects industry NPFs to remain elevated and asset growth depressed due to weak credit demand and lenders’ risk aversion for the remainder of 2020.
“The pace of loan restructuring should decline after most economic activities resumed in June as mobility restrictions eased. However, we expect restructured balances to remain high; these loans will be tagged as restructured until fully repaid,” Fitch reported.