Local banks in Indonesia remain hesitant to disburse loans to companies that are engaged in Indonesia's mining sector due to the high degree of bad debt in this sector. Hence, credit disbursement to the country's mining sector continues to shrink. On the one hand, it is positive that Indonesia's banking sector becomes less dependent on the volatile movement of mining commodity prices.
Based on the latest data from Indonesia's central bank (Bank Indonesia), the nation's gross non-performing loan (NPL) ratio - involving credit disbursed to the 100 biggest mining debtors - reached 7.73 percent in November 2017. This is higher than the 6.56 percent NPL ratio in 2016 and a significant jump compared to 2.89 percent in 2015.
Herry Sidharta, Vice Director at Bank Negara Indonesia (BNI), said the rising NPL ratio in the mining industry of Indonesia actually makes sense as the number of debtors remains the same, while demand for credit (and credit disbursement) declines. For the future, he expects the mining industry to strengthen due to improving commodity prices. Currently, the coal price is significantly higher than two years ago. However, it has not led to an increase in new players in the coal mining industry, hence investors seemingly remain cautious and somewhat wary of price volatility, especially now Chinese policies basically determine the direction of global coal prices.
Credit disbursement to Indonesia's 100 largest mining corporations fell 14.7 percent year-on-year (y/y) to IDR 85.64 trillion (approx. USD $6.3 billion) per November 2017, the lowest amount of credit that was disbursed to this sector since 2013 (see table below).
It depends on each bank's risk management policy and risk appetite whether or not to invest in loans in the mining sector. Jahja Setiaatmadja, President Director of Bank Central Asia (BCA), said his bank simply ignores the mining industry as it is considered too risky. Moreover, it remains uncertain whether recently strengthening commodity prices are sustainable on the longer term.
*Credit Disbursement & NPL Ratio Indonesia's Top 100 Biggest Mining Debtors:
2012 2013 2014 2015 2016 2017
(in IDR trillion) 68.59 78.04 90.10 100.30 97.45 85.64
NPL Ratio (%) 0.47 0.52 2.14 2.89 6.56 7.73
*Source: Bank Indonesia
Source: Indonesia Investments
23 February 2018