SOE lending push raises concentration risks for state banks: S&P
S&P Global Ratings has cautioned about earnings and concentration risks at state lenders amid rising exposure to state-owned enterprises (SOEs) and the government’s economic programs, which has expanded their loan growth at twice the industry rate.
S&P Global Ratings has issued a warning regarding potential earnings and concentration risks facing state lenders, as they have been increasingly lending to state-owned enterprises (SOEs) and participating in the government's economic programs. This has resulted in loan growth for these lenders at twice the industry average. Analyst Nikita Anand emphasized that the severity of the risk depends on the repayment history of these large borrowers.
She cautioned that a significant increase in concentration, or a decline in the credit quality of these SOEs, could lead to substantial defaults, causing credit costs to rise and impacting both earnings and capital. As a "watchpoint," S&P has identified the asset quality of recent SOE loans, owing to their elevated concentration risks.
The agency is closely monitoring the first repayment due from the state-owned agriculture firm PT Agrinas Pangan Nusantara, which manages the Red and White Cooperatives program, scheduled for September. Should these repayment cycles proceed smoothly, it would alleviate concerns, but the practical efficiency of the government's claim mechanism remains untested, making this period crucial for monitoring.
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