Bad News From Fitch Ratings, Indonesia's Economic Growth Projection Drops Due To The COVID-19 Craze

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JAKARTA - The international rating agency brings bad news for Indonesia. They lowered their projection for Indonesia's economic growth from 5.3 percent to 4.8 percent.

According to Fitch, the increased risk from the recent surge in COVID-19 cases is considered to have a major impact on the Indonesian economy. This also poses risks to financial markets, both banks and non-banks.

"Fitch recently lowered its 2021 GDP growth forecast for Indonesia to 4.8 percent from 5.3 percent due to risks from rising infections", Fitch said in a statement on its official website, quoted Tuesday, July 20.

Even so, Fitch appreciates the Indonesian government's policy of trying to suppress the surge in COVID-19 cases with the Emergency PPKM policy. Fitch also hopes that the projected economic downturn will not decline further in the future.

Furthermore, Fitch sees the impact of the COVID-19 craze in the country can have an impact on the financial sector, where debtors will ask for an extension of loan restructuring to banks and non-banks. The goal is that they can delay the obligation to repay the loan principal and interest.

In fact, according to Fitch's records, credit restructuring at 12 major banks has increased by 21.5 percent in the first quarter of 2021. The demand is higher than 5.5 percent in the first quarter of 2020.

This condition makes the ratio of non-performing loans (NPL) also swell from 2.6 percent in the first quarter of 2020 to 3.1 percent in the first quarter of 2021.

Likewise, requests for financing restructuring in non-banks rose 40 percent in the first quarter of 2021 with the ratio of non-performing financing (NPF) to 3.7 percent.

Only the net interest margin (Net Interest Margin (NIM) of banks is estimated to continue to grow amid the shadow of a surge in cases. This projection comes from the realization of the bank's NIM of around 4.6 percent in the first quarter of 2021.

"Remains among the highest in the region. In addition, the bank continues to be well-capitalized, its average general equity ratio of 22.2 percent at the end of Q1 2021 is the highest among markets that Fitch has rated in Asia", Fitch explained.