Loan provisions: A strategy for sustainability during uncertainty
Indonesia’s economic growth was contracted by 2.07 percent (yoy) by 2020 with the peak of the recession of 5.32 percent in the second quarter of 2020. Meanwhile, Indonesian Banking Industry also recorded negative growth for loans and profitability. Non-performing loans and loans at risk were rising, hence banks have significantly increased their loan loss provisions or allowance for impairment losses (CKPN). In theory, loan loss provision has a vital role in maintaining the soundness of a bank in fulfilling the intermediary function. When a bank disbursed loans to customers, it will be exposed to credit risk – the risk that the borrower may not pay back the loan. To offset this credit risk, banks have to provide credit loss provision. This provision illustrates an estimate of the expected loss of the loan. In December 2020, the absolute value of loan loss provision for Indonesian Bank recorded at Rp304.2 trillion, an increase of 84.7 percent compared to December 2019 of Rp164,7 tri