Banking - Signed by Prabowo, here are the criteria for writing off NPL for SoE Banks

Banking - Signed by Prabowo, here are the criteria for writing off NPL for SoE Banks President Prabowo Subianto has officially issued a Government Regulation (PP) regarding the write-off of non-performing loans for MSMEs. In PP No. 47 of 2024, several criteria have been established. In the copy of the Government Regulation (PP), the regulation explains that UMKM loans eligible for debt write-off are not limited to those originating from government programs or disasters. However, it can apply to all credits originating from Financial Services Institutions, whether banks or non-banks, state-owned enterprises. Moreover, financial institutions can write off up to IDR500 mn of non-performing loans per debtor, provided the loans are at least five years old, unsecured, and have no salvageable collateral. This measure aims to alleviate the burden on both banks and borrowers, without incurring state financial losses, as long as it's done in good faith and adheres to legal and corporate governance principles. (Source : Kontan) Comment : The recent discourse surrounding debt write-offs has sparked concerns about its potential impact on the banking sector. However, historical precedent and the long-standing challenges of debt collection suggest that the actual effect will be minimal, in our view. Given the relatively insignificant contribution of these receivables to overall bank income, we believe the key drivers of growth in 2025 are anticipated to be stronger year-on-year credit growth, sustained NIM expansion, and stable credit costs at low levels. Additionally, a robust growth in third-party funds is essential to support continued solid credit growth. Based on these factors, we maintain an Overweight stance on the banking sector, with Bank Central Asia (BBCA) and Bank Mandiri (BMRI) as our top picks. Bank BRI Syariah (BRIS) is our preferred choice among Islamic banking stocks. We remain optimistic about the banking sector's continued positive growth trajectory in 2025.