Indonesian banks are heading into 2026 in a “more stable” position as funding pressures ease and loan growth normalises, but analysts warn that micro and SME segments will remain the main sources of risk. A recent sector update shared by regional brokers and industry groups notes that deposit competition, which intensified during earlier rate hikes, has started to cool as policy settings stabilise and liquidity conditions improve, allowing lenders to gradually reprice funding. That should help support net interest margins even if benchmark rates start to edge lower later in the year, particularly for dominant franchises with strong low‑cost current and savings account (CASA) bases. At the same time, overall credit demand is expected to grow at a mid‑single‑digit pace, driven by consumer lending, mortgages and selective corporate borrowing tied to infrastructure and industrial projects.
The outlook comes against the backdrop of research showing that Indonesian banks rank among the most profitable in ASEAN on measures such as return on assets and return on equity, even as Singapore’s system remains the region’s most stable. The Universitas Jambi comparative study highlighted that Indonesian lenders benefit from relatively wide margins but also operate with higher structural risks, including more volatile funding and greater exposure to small businesses. Analysts echo that view, pointing to microfinance and SME portfolios as areas that warrant continued scrutiny in 2026, especially among second‑tier and regional banks with concentrated exposures. While headline non‑performing loan ratios have improved, special‑mention loans and restructured accounts remain elevated for some lenders, suggesting that a full clean‑up of pandemic‑era stress is still in progress.
Regulatory oversight from OJK is expected to stay firm, with continued emphasis on capital adequacy, provisioning and risk management in high‑yield segments. Larger banks such as BCA, BRI and Mandiri are generally viewed as well positioned, thanks to diversified income streams, strong fee franchises and robust capital buffers that offer room to absorb any uptick in credit costs. Smaller banks may find the environment more challenging as they balance the need to grow with tighter funding, higher compliance expectations and rising technology investments. Overall, the consensus is that Indonesia’s banking system is entering 2026 in better shape than in previous cycles, but the quality of micro and SME books—and how banks manage those exposures—will be the key determinant of whether the recovery remains on track.
