Banks

Deteriorating Household Loans’ Asset Quality

• Based on the OJK data, we see deteriorating asset quality across all segments, i.e., property, vehicle, and other household loans.
• Breaching its all-time high NPL ratio, the weaknesses observed in the apartment segment reaffirm our concern about asset quality in 2025.
• Maintain Neutral rating on the sector with BBCA as our top pick, followed by BTPS, on their earnings momentum and lesser ownership.

Rising consumer NPLs, no ST panacea in sight

Overall household loans experienced a decline in asset quality, with NPL rising to 2.1% as of Mar25 from 1.8% in Mar24. The worsening asset quality was observed across all segments, i.e., property, vehicle, and other household loans, with NPL rising by 36bps, 18bps, and 25bps to 2.9%, 2.2%, and 1.6%, respectively. Although current NPL levels for property and vehicle loans remain below the 2020 pandemic peak, the upward trend is worrisome given the continued lack of clear signs of recovery. Moreover, the NPL for other household loans has exceeded its Covid19 peak, with a consistent uptrend since early 2024.

Rising NPLs amid sluggish mortgage growth

Mortgage accounted for more than a third of household loans, and its NPL ratio recently ticked up to 2.9% as of Mar25. We think the combination of slowing loan expansion and rising NPLs for mortgages is a concerning signal, as it suggests that asset quality is deteriorating despite banks already being cautious with lending. Aside from shophouses, the NPL ratios of both landed houses and apartments have also been in an uptrend since 2022. We see the rising NPL ratio in the landed house segment (more than 90% contribution to mortgages) as alarming as it approaches its historical pre-Covid level.

Middle consumer segment asset quality concerns arising

Apartment’s NPL ratio reached its all-time high in Mar25 at 3.2%, above covid19’s 2.9%. We note that in the past two peak NPLs, i.e., 2017 and 2020, they were preceded by higher mortgage disbursements, i.e., more than 80% in 2013 and more than 30% in 2018. In contrast, YTD all-time high NPL ratio was only preceded by low-teens mortgage growth in 2022. In our view, this reaffirms the likelihood of a trickle-up effect from deteriorating asset quality in the micro segment to the middle segment throughout 2025.

Maintain Neutral, with BBCA remaining as our top pick

We continue to favor BBCA and BTPS, on the back of 1) higher earnings growth, 2) reasonable valuations, 3) less potential involvement in government programs, and 4) less crowded local positions. We maintain a Neutral rating as we continue to see high domestic and global macro uncertainties. Key risks to our view include stronger Rupiah, higher-than-expected liquidity, and stronger asset quality.

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