* Incentives originally set to expire in March 2021
* Aggregate NPL level below healthy threshold
* Bankers see move as "helpful"
JAKARTA, Oct 23 (Reuters) - Indonesia's Financial Services
Authority (OJK) will extend loan restructuring incentives for
some banks until March 2022, it said on Friday, to prevent a
spike in bad loans as a result of economic fallout from the
Such an extension allows banks to avoid making provisions
for souring loans for a year longer than originally set, among
other measures to help the industry, which saw loan growth of
0.12% in September, Indonesia's weakest in more than a decade.
The incentives have helped keep non-performing loan (NPL)
ratios below the regulator's healthy threshold of 5%.
It said loan restructuring had reached 904.3 trillion rupiah
($62 billion) for 7.5 million debtors by Sept. 28, with NPL
levels at 3.15% by the end of September, a slight drop from a
"The extension is an anticipation measure to buffer a
decline in the quality of debts under restructuring," the
regulator's chairman, Wimboh Santoso, said.
"But the extension of restructuring policy would be handed
out selectively based on assessment of banks to prevent moral
hazard," he added in a statement, saying he also wanted to
encourage debtors to "adapt" to the pandemic.
The regulator did not elaborate, but said it was finalising
a regulation to back up the extension, and would also extend a
relaxation of capital conservation buffer rules while delaying
adoption of Basel-III regulations.
The move was "really helpful" for the banking industry, said
Jahja Setiaatmadja, chief executive of Bank Central Asia
, Indonesia's largest lender by market value.
Loan restructuring requests have plateaued, but the
pandemic's economic woes persist, said Aquarius Rudianto,
director of retail banking at state lender Bank Mandiri, who
welcomed the move.
Aquarius added, however, that his bank's internal strategy
was to continue building up provisions to be prudent.
Without the extension, NPL could shoot up to 4% as weak
economic activity could still pressure business, said Josua
Pardede, chief economist at Bank Permata.
"The hope is, with the extension, NPL could decline further,
credit growth could pick up," Josua added.
(Reporting by Tabita Diela and Maikel Jefriando; Writing by
Gayatri Suroyo; Editing by Jacqueline Wong and Clarence