The international rating agency Fitch has lowered its projection for Indonesia's economic growth in 2021 from 5.3 percent to 4.8 percent, given the increased risks from the recent resurgence of COVID-19 cases.

A road leads to Jakarta's centre (Source: VNA)

In a statement on its official website, Fitch said it still hopes that Indonesia's economic downturn will not worsen in the future as the Indonesian Government is trying to control the rise in COVID-19 cases with the emergency restriction on community activities (PPKM).

Furthermore, Fitch also warned of the impact of the COVID-19 spike on the financial sector, where borrowers will ask for an extension of loan restructuring to banks and non-bank lenders.

According to Fitch's records, restructured loans at the 12 largest banks rose to around 21.5 percent of the total by the end of the first quarter in 2021, from 5.5 percent at the same period last year. This helped to cushion the rise in non-performing loan (NPL) ratios, which rose to 3.1 percent at the end of Q1 2021 for these banks, from 2.6 percent a year earlier.

Finance companies’ restructured receivables, at roughly 40 percent in Q1 2021, similarly dwarfed their industry's NPL ratio of 3.7 percent for the same period, up from 2.8  percent in Q1 2020.

However, Fitch believed Indonesia's banks are generally well-placed to cushion the blow with net interest margins (NIM) at 4.6 percent percent at the end of Q1 2021, among the highest in the region.

Source: VNA