Key facts
- Indonesian banks posted strong loan and profit growth in H1 2026.
- Tighter liquidity is anticipated as government funds supporting banks mature in October.
- Loan growth is primarily driven by large corporations and state-owned enterprises, not retail or MSMEs.
- Funding costs are rising, and deposit growth is slowing faster than credit growth.
- State-owned banks saw significant credit growth, while private banks experienced a contraction.
Indonesian banks have reported robust loan and profit growth in the first half of 2026, largely supported by government liquidity injections into state-owned lenders. However, this positive performance masks underlying challenges, including a widening gap between corporate and retail/MSME loan demand, and an impending liquidity squeeze as state funds mature in October.
Analysts note that while headline loan growth figures appear strong, they are increasingly driven by large corporations and state-owned enterprises, with subdued demand from individuals and small businesses. This divergence is evident in the significant difference between overall loan growth and interest income growth for major banks like Bank Mandiri, BNI, and BRI.
Furthermore, the banking sector is facing rising funding costs as deposit growth decelerates faster than credit growth. Bank Indonesia's restrictive monetary policy, aimed at curbing inflation and protecting the rupiah amid global uncertainties, contributes to this tightening liquidity environment. Private banks, in particular, are focusing on managing their cost of funds through digital channels and payroll accounts, while state-owned banks continue to facilitate government-directed projects.
Experts predict that while earnings may remain resilient in the short term, the impact of tighter liquidity and higher funding costs will become more apparent in the latter half of 2026, potentially leading to a slowdown in credit growth and missing official targets.