Indonesia Banking Optimism Strengthens, Growth Turns More Selective in 2026

JAKARTA, Investortrust.id — Indonesia’s banking sector strengthens toward the end of 2025 and into 2026 as easing interest rates and improving macroeconomic conditions lift confidence while regulators urge banks to focus on asset quality and risk mitigation, according to a Financial Services Authority survey released on Monday, Dec 29, 2025 in Jakarta.

The Survey of Banking Business Orientation conducted by the Financial Services Authority showed the Banking Business Orientation Index reached 66 in the fourth quarter of 2025, placing the industry firmly in the optimistic zone.

The survey, conducted in October 2025, covered 102 banks representing 99.25% of total commercial bank assets as of September 2025, indicating broad based confidence across the sector.

Expectations of stronger domestic macroeconomic conditions drove optimism, supported by confidence in banks’ ability to manage risks effectively.

The Macroeconomic Condition Expectation Index returned to an optimistic level of 63 in the fourth quarter of 2025, reflecting projections of higher economic growth alongside a decline in the BI policy rate and a firmer rupiah exchange rate.

Seasonal consumption during the Christmas and New Year period, combined with government fiscal stimulus, was also expected to lift demand for goods and services and support economic activity.

Risk conditions were seen as manageable, with the Risk Perception Index standing at 57, as respondents expected credit quality to remain sound and foreign exchange exposure to stay low.

Despite this, net banking cash flow was projected to ease from the previous quarter as cash outflows rose toward year end due to operational needs and regional government spending.

The Performance Expectation Index reached 78 in the fourth quarter of 2025, underpinned by expectations that credit growth would continue on the back of sustained loan demand and existing lending pipelines.

Dian Ediana Rae, Chief Executive for Banking Supervision at the Financial Services Authority, said banking growth was expected to remain positive in 2026 as global and domestic interest rates trended lower.

“If fund raising remains positive, liquidity will stay adequate and support credit distribution,” Dian said, adding that lower global rates were also expected to boost credit demand across the economy.

Non performing loan ratios were projected to remain low at around 2%, although pressure was expected to persist in the micro, small, and medium enterprise segment.

Based on banks’ business plans submitted in late November 2025, credit growth in 2026 was expected to edge higher than in 2025, supported by ample room for further rate cuts.

Banking intermediation remained stable, with credit growing 7.36% year on year to Rp 8,220.21 trillion in October 2025, while the industry’s capital adequacy ratio stood at a strong 26.38%.

Dian said consolidation would be increasingly important to strengthen resilience amid digital acceleration, global uncertainty, and rising cyber risks, allowing banks to achieve scale, efficiency, and stronger technology infrastructure.

The authority, he added, would continue to encourage natural and voluntary consolidation while maintaining regulatory compliance and customer protection.

Hery Gunardi, chairman of the National Banking Association of Indonesia, said banking credit growth was expected to remain in the upper single digit range in 2026, reflecting still weak demand rather than funding constraints.

Liquidity remained ample, with the industry loan to deposit ratio at around 84%, well below the regulatory threshold, giving banks room to expand lending.

Aviliani, head of research at the association, said 2026 would be marked by more selective and controlled growth, with credit expansion normalizing across sectors.

Capital intensive sectors such as mining, logistics, energy, and technology were expected to continue driving growth, while labor intensive sectors recovered more slowly.

Senior banking observer Trioksa Siahaan from the Indonesian Banking Development Institute said the sector could rebound more strongly in the second quarter of 2026 if purchasing power, inflation, funding costs, and liquidity remained under control.

Technology adoption, he added, continued to improve efficiency as banks rationalized physical branches and lowered operating costs.