Indonesian banks' profitability metrics declining steadily since 2013

Return-on-assets will remain flat at 2%.

Fitch Ratings expects credit costs to remain high on incremental NPLs and banks replenishing cover levels, with the average ROA for the top-10 banks estimated to remain flat at around 2%.

Banks’ profitability metrics have declined steadily over the past three years, dragged down by rising credit costs, says Fitch. Yet the profitability of Indonesian banks remains relatively high compared with most of their regional peers, thanks to the banks’ strong NIMs.

"We expect the top-four banks’ profitability to continue to perform better in relation to the medium-sized banks, given their stronger deposit and lending franchises which suggest a greater loss-absorption capability. The lower VRs of the medium-sized banks incorporate their moderate credit-cost tolerance and lower profitability compared with their larger peers," adds Fitch.