Indonesian banks to finally see a slowing pace of NPL growth

Credit uptake will likely increase in the coming quarters.

BMI Research believes that the worst is likely to be over for the Indonesian banking sector, following a difficult operating environment in 2016.

The economic environment is set to improve over the coming quarters due to positive reform momentum and waning external headwinds, which BMI Research expects to slow the pace of NPL growth and drive an increase in credit uptake over the coming quarters.

"In addition, the Indonesian banking system is one of the most robust in the region, safeguarded by strong capital buffers, which stood at 22.9% in December 2016. This figure compares favourably with 21.4% a year ago, and is much higher than the regulatory requirement of 10% according to Basel III standards. We expect the capital adequacy ratio to remain stable as it will be supported by high net interest margins leading to strong levels of profitability."