Indonesian Banking Sector Review: Sluggish Credit Growth Amid Ample Liquidity

Credit Growth Trends in 2025

The Indonesian banking sector experienced a year of adjustment in 2025, characterized by sluggish credit growth despite ample liquidity. According to data from the Financial Services Authority (OJK), credit growth slowed throughout the year, from 10.27% YoY in January to 7.74% YoY in November. This trend reflected banks' increased cautiousness in lending amid economic uncertainty and their focus on maintaining asset quality.

Sectoral Credit Performance

The composition of credit growth revealed interesting patterns. Investment loans consistently drove growth, maintaining double-digit expansion throughout the year. In contrast, working capital loans showed limited growth, reflecting businesses' cautious approach to new investments and operational expansion. The disparity was particularly evident in the corporate segment, where credit growth reached 15.95% YoY in February but slowed subsequently.

Liquidity Conditions and Policy Measures

Despite sluggish credit growth, liquidity conditions in the banking system remained ample. As of September 2025, the Liquidity Coverage Ratio (LCR) stood at 202.62%, significantly above regulatory minimums. The Loan-to-Deposit Ratio (LDR) was maintained at around 86%, indicating sufficient liquidity. To stimulate credit growth, authorities implemented several policy measures:

1. Macroprudential Liquidity Incentives: Bank Indonesia increased the liquidity incentive fund from Rp259 trillion to Rp283 trillion effective January 2025.
2. Monetary Policy Easing: BI maintained an accommodative stance, cutting the benchmark interest rate to 4.75% throughout 2025.
3. Fiscal Support: The government utilized the Budget Surplus (SAL) funds, distributing approximately Rp200 trillion to the banking system throughout 2025.
4. Continued Support for Priority Sectors: Programs like Kredit Usaha Rakyat (KUR) continued, with disbursements reaching Rp180.01 trillion to 3.07 million debtors by August 2025.

Challenges and Future Outlook

The banking sector faced challenges in balancing credit growth with risk management. The loan-at-risk ratio rose to 9.72%, indicating increased credit risk exposure. While investment loans drove growth, working capital loans and micro, small, and medium enterprise (UMKM) credit remained subdued. The authorities' coordinated policy response aimed to maintain financial system stability while supporting economic growth through targeted credit expansion.