Bank Indonesia Introduces New Macroprudential Incentives

Enhanced Credit Growth Initiatives

Bank Indonesia is implementing new macroprudential policy incentives (KLM) effective December 1, 2025, to stimulate credit growth and enhance monetary policy transmission. The central bank aims to encourage banks to increase lending through two primary channels: the lending channel and interest rate transmission channel.

Lending Channel Incentives

The lending channel incentives will provide banks with additional liquidity based on their credit growth commitments. Key features include:

• Up to 5% of Third-Party Funds (DPK) in incentives
• Focus on four priority sectors:
  1. Agriculture, Industry & Downstreaming (1.5% KLM)
  2. Services including creative economy (0.6% KLM)
  3. Housing (1.4% KLM)
  4. MSMEs, Cooperatives, Inclusion, and Sustainable (1.5% KLM)
• Forward-looking assessment based on banks' quarterly business plans
• Adjustments made in subsequent quarters if targets are not met

Interest Rate Transmission Incentives

To accelerate the transmission of monetary policy, BI is introducing additional incentives based on banks' responsiveness to BI Rate changes. The scheme includes:

• Additional 0.4-0.5% of DPK for banks that quickly adjust their lending rates
• Elasticity calculation based on (% Change in Lending Rate) / (% Change BI Rate)
• Banks with elasticity <0.3 receive no incentives
• Banks with elasticity 0.3-0.6 receive 0.4% additional incentive
• Banks with elasticity ≥0.6 receive 0.5% additional incentive

Rationale and Expected Impact

The new incentives address two key challenges:

1. Credit growth, while improving, remains below desired levels at 7.7% YoY as of September 2025
2. Slow transmission of monetary policy despite 150 bps BI Rate cut this year

By providing these incentives, BI aims to ensure banks have sufficient liquidity to support credit expansion, particularly in priority sectors. The total potential incentives can reach up to 5.5% of DPK when combining both lending channel and interest rate transmission incentives.