JAKARTA -- Indonesia's largest bank by assets on Tuesday reported a surge in net profit for 2017 as a rebound in commodity prices helped reduce bad loan provisions, although it said earnings growth will be slower this year due to heated competition.
Bank Mandiri said net profit for the 12 months ended December rose 49% year-on-year to 20.64 trillion rupiah ($1.53 billion), marking a return to growth after a rare profit decline in 2016.
Net provisions fell 35% to 15.9 trillion rupiah as its nonperforming loan ratio fell to 3.5% from 4.0%. Growth was also supported by a 16% rise in fee-based income, thanks to foreign exchange gains and a strong performance at its bond trading division.
Net interest and premium income increased by a much slower 0.6% to 54.8 trillion rupiah. Outstanding loans grew 10% to 729.5 trillion rupiah, but its net interest margin -- the difference between lending and borrowing rates -- fell 0.57 percentage points to 5.87%.
The results illustrate the extent of Indonesia's economic recovery. While a rebound in commodity prices are boosting banks' financial health, lackluster growth in consumer spending is capping their risk appetite. This has led to intense competition in loans to healthy blue-chip corporate clients, dragging interest rates down.
"In 2015-16, there was a lot of restructuring at corporations, particularly due to the impact of falling commodity [prices]. Now, we can see coal companies expanding again," Mandiri President Kartika Wirjoatmodjo told reporters. "But consumer goods and property [industries] are somewhat lagging."
Wirjoatmodjo said its nonperforming loan ratio is expected to fall further to below 3% by the middle of this year. On the other hand, profit growth will fall to around 10-20% as interest margins remain stagnant.
Mandiri's shares dropped 1.2% to 8,025 rupiah on Tuesday, before the announcement of the results. It performed slightly better than the benchmark Jakarta Composite Index, which fell 1.7% to close at 6,478.543.