Fitch Warns of ‘Bubble-Like Symptoms’ for Indonesia
March 18, 2014 Leave a comment
Fitch Warns of ‘Bubble-Like Symptoms’ for Indonesia
By Vanesha Manuturi on 08:53 pm Mar 13, 2014
Jakarta. Fitch Ratings warned investors to remain cautious on Indonesia’s growth this year on the back of “bubble-like symptoms.”
Indonesia’s inflated property prices in the past three years, compared to its gross domestic product, are showing bubble-like symptoms, the ratings agency said.
Ambreesh Srivastava, Fitch’s senior director and head of financial institutions for South and Southeast Asia, said in Jakarta on Thursday that although most Indonesian banks seemed to be in a good place by setting aside money to cover potential losses from non-performing loans, the reserves become much lower when special-mention loans are included.
Special-mention loans are potentially weak loans. In a downturn, SMLs will be the first to pose risks in asset quality, Srivastava said.
Data from Bank Indonesia showed that a total of Rp 60 trillion ($4.9 billion) in non-performing loans among Indonesia’s 120 commercial banks last year. That was equivalent to 1.9 percent of total loans outstanding, as of the end of November, according to calculations by Jakarta Globe. That compares to Rp 53 trillion, or 2 percent, in November 2012.
Non-performing loans among property companies rose to Rp 3.6 trillion, or 1.9 percent of the total, from Rp 2.3 trillion, or 1.5 percent, central bank data showed.
Lending growth by the country’s banking is expected grow between 15 percent to 17 percent this year, slowing from last year’s 22 percent pace.
Srivastava urged Indonesian banks to focus on building up their deposits right now to maintain liquidity.
The textbook definition of a bubble refers to prices of securities or other assets rising sharply to exceed their valuations by fundamentals. According to Colliers Jardine, a property consultant company, the average growth of the asking base rent in Jakarta’s central business districts rose 34.2 percent last year, making it at Rp 227,946 ($19.75) per square meter per month.
Despite the cautionary attitude, Srivastava said Indonesia’s economic system has been resilient so far, giving with a relatively positive sentiments on the country’s growth.
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