Banking - NPL declines, private bank provisioning costs fall

Banking - NPL declines, private bank provisioning costs fall Amidst the declining non-performing loan (NPL) conditions in the banking sector in June 2025, it seems that some private banks are also reducing their provisioning costs. According to OJK records, the gross NPL ratio for the banking industry stood at 2.22% as of June 2025. This figure is down from the gross NPL ratio of 2.26% in June 2024. During the same period, the banking industry's loan at risk (LaR) ratio also decreased to 9.73%, compared to 10.51% in June 2024. The ratio also decreased on a monthly basis. In May 2025, the Gross NPL ratio was at 2.29%, or 7 basis points (bps) higher than in June. Meanwhile, the LaR ratio in May 2025 was also at 9.93%, or 20 bps above the LaR ratio in June. (Source : Kontan) Comment : The declining NPL and LaR in the Indonesian banking sector in June 2025 indicate a strengthening of asset quality and a reduction in credit risk. This positive trend allows banks to reduce their provisioning costs, which directly benefits their financial performance. These synchronized decreases in both NPL and LaR ratios signal a healthier lending environment in the Indonesian banking sector. The improvement in asset quality lessens the need for banks to maintain large loan-loss provisions, allowing them to optimize their capital and improve their bottom line. This is a clear and logical financial strategy. Maintain OW for the sector with pecking order picks BBCA > BMRI > BRIS.