Rising Oil Price Worsening Non Performing Loan

Rising Oil Price Worsening Non Performing Loan

Indonesian Banking non performing loan (NPL) ratio could reach 5,82% in the end of 2008 if oil price reach USD 125 per barrel along with natural disaster that could affect the financial system stability.

Central Bank (BI) financial stability studies shows global oil price change have a significant impact toward NPL ratio increase this year. therefore, BI had a commodity simulation toward local financial stability.

In BI simulation, every 10% oil price increase could rise next three month gross NPL ratio about 0,20%. Bloomberg data shows 04/25 oil price had reach USD 115 per barrel.

If oil price reach USD 120 per barrel, BI forecast that NPL ratio could reach 5,75%, while on USD 125 per barrel could jump up the ratio to 5,82% in the year end.

The study also shows environmental damage caused by natural disaster that often happen in Indonesia could bring negative impact on financial stability and could causing high cost economy and infrastructure damage and for financial sector it could affect bank NPL rate and give an operational risk.

Halim Alamsyah Director of Banking Research and Arrangement BI (04/24) said up to third week of April, NPL ratio still under 5%  tolerance limit. In the same period the new credit are IDR 55 trillion and in total the credit that channelled are over IDR 1.100 trillion or 139% rise compare with the same period in 2007.

Halim said futher some external factors such as subprime mortgage effect, rising world oil price and basic commodities could increase the risk on local banking industry.

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