Debt threat: Indonesian banks' profits pressured by rising bad debts and slowing economy

Bank Negara Indonesia's gross NPL ratio rose to 2.8% for the first nine months of 2015.

According to SNL Financial, Indonesia's GDP expanded 4.67% in the second quarter from a year earlier, the slowest pace since 2009, as the resources-rich nation faces headwinds from low commodity prices and a slump in China, Indonesia's largest trading partner. The World Bank in October cut its 2015 and 2016 growth projections for Indonesia.

Here's more from SNL Financial:

Worsening economic conditions are translating into challenges for banks, putting pressure on their asset quality. The industrywide nonperforming loan ratio hit 2.6% as of the end of May, as the mining and commodity sectors struggle, Fitch Ratings said in September. Still, nine Indonesian lenders covered by the rating agency have enough loss-absorption cushions for now, Fitch said at that time.

PT Bank Negara Indonesia (Persero) Tbk's latest results may be an indicator of what is to come. The fourth-biggest Indonesian bank by assets on Oct. 15 reported a 21.2% year-over-year drop in net income for the nine months through September, with the gross NPL ratio rising to 2.8% at the end of the period from 2.2% 12 months earlier, and with provisioning surging 93.6%.

Although the bank's third-quarter net profit came in above expectations, bad debt will likely continue to increase if macroeconomic circumstances remain challenging, with its NPL coverage ratio rising to 145% by the end of 2015 from 123.4% a year earlier, Teguh Hartanto, an analyst at PT Bahana Securities, said in an Oct. 16 note.