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Indonesian banks’ profitability hardest hit amid COVID-19 but remained highest in Asia Pacific

The COVID-19 pandemic has exerted substantial impact on the profitability of banks in Asia Pacific, although most are better positioned to weather this crisis than during the global financial crisis

March 16, 2021 | Wendy Weng

Although the banking system remained resilient in 2020 amid the COVID-19 pandemic, profits have been hit hard. In Asia Pacific (APAC), the profitability of banks weakened as reflected by the drop in weighted average return on assets (ROA), an indicator of asset efficiency and profitability, from 0.82% in the first half of fiscal year 2019 (1H FY2019) to 0.66% in 1H FY2020 (Figure 1), according to The Asian Banker 500 (AB500), an evaluation of the top 500 largest banks in APAC.

The net interest margins of banks have been squeezed by the cuts in interest rates. Meanwhile, banks made larger loan loss provisions to prepare for the potential surge in non-performing loans especially after the financial aid measures introduced by regulators end. In addition, some economies witnessed slower credit growth.

Among the 18 markets in the region, Indonesia saw the largest drop in ROA. On average, the 23 Indonesian banks in the AB 500 ranking reported a 22.1% year-on-year (YoY) contraction in net profit in 1H 2020, compared to a 13.5% YoY increase over the same period a year earlier. Average ROA fell from 2% in 1H 2019 to 1.4% in 1H 2020. Despite this, Indonesian banks still enjoyed the highest ROA. In addition to the narrowed margins and rising loan loss provisions, weaker lending growth also contributed to the fall in ROA.

The average loan growth of these banks decelerated significantly from 14.3% YoY at the end of June 2019 to a mere 0.2% YoY at the end of June 2020. Loan demand was weak as business activity and consumer spending were stunted amid the pandemic. Meanwhile, Bank Indonesia (BI) said that commercial banks’ reluctance to cut lending rates in line with central bank easing resulted in the sluggish loan growth, and it therefore urged banks to further cut lending rates.

Average ROA of banks in countries like Thailand and Philippines ...

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Categories:

Keywords:Profitability, Net Profit, Roa, Digitalisation


Indonesian banks’ profitability hardest hit amid COVID-19 but remained highest in Asia Pacific

The COVID-19 pandemic has exerted substantial impact on the profitability of banks in Asia Pacific, although most are better positioned to weather this crisis than during the global financial crisis

March 16, 2021 | Wendy Weng

Although the banking system remained resilient in 2020 amid the COVID-19 pandemic, profits have been hit hard. In Asia Pacific (APAC), the profitability of banks weakened as reflected by the drop in weighted average return on assets (ROA), an indicator of asset efficiency and profitability, from 0.82% in the first half of fiscal year 2019 (1H FY2019) to 0.66% in 1H FY2020 (Figure 1), according to The Asian Banker 500 (AB500), an evaluation of the top 500 largest banks in APAC.

The net interest margins of banks have been squeezed by the cuts in interest rates. Meanwhile, banks made larger loan loss provisions to prepare for the potential surge in non-performing loans especially after the financial aid measures introduced by regulators end. In addition, some economies witnessed slower credit growth.

Among the 18 markets in the region, Indonesia saw the largest drop in ROA. On average, the 23 Indonesian banks in the AB 500 ranking reported a 22.1% year-on-year (YoY) contraction in net profit in 1H 2020, compared to a 13.5% YoY increase over the same period a year earlier. Average ROA fell from 2% in 1H 2019 to 1.4% in 1H 2020. Despite this, Indonesian banks still enjoyed the highest ROA. In addition to the narrowed margins and rising loan loss provisions, weaker lending growth also contributed to the fall in ROA.

The average loan growth of these banks decelerated significantly from 14.3% YoY at the end of June 2019 to a mere 0.2% YoY at the end of June 2020. Loan demand was weak as business activity and consumer spending were stunted amid the pandemic. Meanwhile, Bank Indonesia (BI) said that commercial banks’ reluctance to cut lending rates in line with central bank easing resulted in the sluggish loan growth, and it therefore urged banks to further cut lending rates.

Average ROA of banks in countries like Thailand and Philippines ...

Please login to read the complete article. If you already have an account, you can login now or subscribe/register.

Categories:

Keywords:Profitability, Net Profit, Roa, Digitalisation


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