Banking - The credit restructuring policy has been proposed again

Banking - The credit restructuring policy has been proposed again The decline in credit quality in the MSME segment has triggered discussions about the possibility of extending the COVID-19 restructuring relaxation. Since this policy was stopped earlier this year, the NPL figures for banks, especially MSMEs, have increased significantly. Data from the Financial Services Authority (OJK) shows that the gross NPL of MSMEs in April 2024 reached 4.26%. This figure is much higher than the previous month's gross NPL, which was around 3.98%. At the same time, the outstanding COVID-19 restructuring credit is still at IDR207.4 tn until April 2024. This figure is slightly down from the previous month, which was the policy deadline, namely IDR228.03 tn. (Source: Kontan) Comment : We believe banks could continue to be able to maintain their risk metrics; even COVID credit relaxation has been fully lifted. The new proposed credit relaxation will positively impact banks as it will give additional time to manage their COVID-impacted NPL. Yet, it only prolonged the potential drawbacks and could put the bank in a higher-risk position, in our view. We also believe that once it is implemented, market trust in bank resilience could become softer. As such, we expect the new proposed credit relaxation to be postponed. Maintain our OW stance for the banking sector.