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Default Study

2022 Edition

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Executive Summary

The global economy in 2022 is faced with the challenge of continuing to recover from the impact caused by the Covid-19 pandemic. On the other hand, Russia-Ukraine geopolitical tensions since the beginning of 2022 and the imposition of sanctions that followed have also caused supply chain disruptions in various commodities around the world, which then caused energy and food prices to soar. Domestic supply conditions and each country's policy responses resulted in varying inflationary pressures. As a result, various central banks around the world adopted a policy of monetary tightening, which resulted in a slowdown in growth in various countries and in the world. Amid a global economic slowdown, Indonesia's economic recovery in 2022 was able to record good results and was higher than the growth before the Covid-19 pandemic. In the full year, Indonesia's economic growth recorded an impressive growth of 5.31%. This impressive achievement was supported by the recovery in household consumption, which is the main contributor to the economy, as well as high export growth due to the commodity price windfall. However, on the other hand, Indonesia is also not free from the global economic turmoil that has occurred. The strengthening of the United States Dollar due to the increase in the Fed's benchmark interest rate has put pressure on capital outflows and depreciated the rupiah.

Based on these conditions, uncertainty remains a challenge for the country's business activities. These challenges also have an impact on the company's business and financial performance, affecting its ability to meet financial obligations and the company's default rate in 2022. PEFINDO notes that one of its rated companies, PT Waskita Beton Precast Tbk. (WSBP), has failed to meet its financial obligations in 2022. This condition is better than in 2020 and 2021, where default occurred in 4 (four) and 2 (two) companies, respectively. The fewer annual default incidents show the recovery of the business world in Indonesia.

The default rate of Debt Instruments rated by PEFINDO, and its ranking published cumulatively from 2007 to 2022 was 1,01% by 2022, while the issuing Company failed at 6.16%. The default rate is divided into several sectors, industries, and initial ratings. The default rates for Debt Instruments and issuing companies were 2.37% and 7.97%, respectively, in the non-financial sector. Meanwhile, it was 0.09% and 2.74% in the financial institutions sector (FIN). PEFINDO noted that defaults occurred in ten industries, both in Debt Instruments and Issuing Companies. The shipping industry (SHIP) has the highest default rate until 2022, both for Debt Instruments and issuing companies. Most default rates on Debt Instruments and Issuing companies were caused by the company's failure to fulfill coupon payments, respectively 0.82% and 3.79%. BBB's initial rating has the highest default rate until 2022 for both the Debt Instrument and the issuing company. Debt Instruments with an initial rating of BBB have a default rate of 9.01% while issuing companies with an initial rating of BBB have a default rate of 11.63%.

In the 1-year rating transition matrix, from 2007 to 2022, higher ratings for Debt Instruments and Issuing Companies show better consistency (remain at the same rating) compared to lower ratings. In addition to having good consistency, higher ratings tend to have a higher percentage of upgrading compared to lower ranks. If the percentage of consistency and rating increase is greater at a higher rating, a different condition is indicated by a lower rating. Lower ratings tend to have a greater percentage of migrating to D ratings (default) in the following year, compared to higher ratings. Meanwhile, the calculation results of the Cumulative Average Default Rate over a span of 15 years, for both Debt Instruments and Issuer Companies, have the same pattern. The longer the time span, the higher the default rate of each rating. Meanwhile, with regard to ratings, the lower the rating, the greater the default rate.