The central bank (Bank Indonesia/B.I.) reported that financial system stability remains solid, although the risks associated with Covid-19 transmission on financial system stability continue to demand vigilance. The Capital Adequacy Ratio (CAR) remained high in October 2020 at 23.70%, accompanied by persistently low NPL ratios of 3.15% (gross) and 1.03% (nett). Notwithstanding, the intermediation function of the financial sector remains weak, as reflected by a 1.39% (yoy) credit contraction in the reporting period, coupled with 11.55% (yoy) deposit growth.
Bank Indonesia is confident that low credit growth stems from weak corporate demand on the demand side and high risk perception in the banking industry on the supply side. New loan growth could potentially accelerate in a number of sectors, including the food and beverages industry, base metals industry as well as leather and footwear industry, in addition to several priority sectors that support economic and export growth. Corporate and SME performance have improved in those sectors, as reflected by higher sales and repayment capacity.