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JAKARTA/BENGALURU (Reuters) - Indonesia's banks posted for January-March the first drop in their bad loans ratio in five quarters and their best profit growth in at least nine, data showed, sparking optimism about their prospects for the rest of the year and for their shares.
According to a Reuters analysis of first-quarter earnings data at 15 Indonesian banks, the average non-performing loans (NPL) ratio fell to 3.48 percent at the end of March from 3.50 percent at end-December. The NPL ratio had been rising continuously from the end of 2015.
Total net profits at the 15 banks, with a market value of more than $100 million each, also rose 16.5 percent during the quarter to 20.1 trillion rupiah ($1.5 billion) from a year earlier. That was the strongest growth in profits since at least the first quarter of 2015.
A recovery in the prices of commodities such as coal and palm oil last year lifted the financial performance of many major borrowers, especially miners and planters. Growth at Southeast Asia's largest economy picked up slightly to 5.01 percent in the first quarter, data showed on Friday.
Indonesia's financial sector sub-index has risen around 12 percent so far this year, outperforming the 7 percent gain of the broader stock exchange.
The chief executive of Indonesia's largest bank by assets, PT Bank Mandiri Tbk, told Reuters last month that he expects a drop in its NPL to around 3 percent of total loans this year as the bank steps up restructuring and asset sales.
For the first quarter, the state-controlled lender posted a 7 percent increase in net profit from a year earlier, lifted by higher fee-based income, while its NPL ratio stood at 3.98 percent.
"On banks, we have seen solid improvements at both the operating and net profit levels due to lower provisioning as many of the banks are finished with their kitchen-sinking activities," brokerage Bahana Securities said in a report this week.
Bahana maintained its "overweight" rating on Indonesia's banking sector and expects a stronger earnings recovery from the second quarter of this year, partly due to accelerated business spending.
Danareksa Sekuritas said it agrees with the general view that "the worst is now over" for banks, but warned of the risk in the mortgage segment as the loan yield for banks may come under pressure from higher competition.
Danareksa's top pick is PT Bank Central Asia Tbk (BCA) due to its asset quality, strong deposits franchise and focus on the consumer segment.
Reporting by Eveline Danubrata in Jakarta and Gaurav Dogra in Bengaluru; Editing by Muralikumar Anantharaman