Impact of Hidden Non-Performing Loan on National Banking System Stability

Abstract

This study examines the hidden non-performing loan (NPL) phenomenon and its impact on the stability of the Indonesian national banking system. Hidden NPLs are non-performing loans that are not identified or hidden in the bank's financial statements, resulting in significant systemic risk. This research uses a descriptive qualitative approach with an analysis of Indonesian banking regulations for the 2019-2024 period. Secondary data is obtained from publications of the Financial Services Authority (OJK), Bank Indonesia, and related national journals. The results show that hidden NPLs can threaten the stability of the banking system through several mechanisms: deterioration of asset quality, interference with intermediation functions, and potential contagion effects between banks. Existing regulations, particularly POJK No. 40/POJK.03/2019 on Asset Quality Assessment of Commercial Banks, have not been fully effective in identifying and controlling hidden NPLs. This study recommends strengthening the supervisory system, increasing reporting transparency, and harmonizing regulations to mitigate the risk of hidden NPLs to the stability of the national banking system.