Indonesian Banking Sector Strengthens Provisions Amid Economic Uncertainty

Improving Loan Quality, Increasing Prudence

The Indonesian banking sector has seen continued improvement in loan quality through September 2025, yet major banks are maintaining their cautious stance by increasing provisioning costs. According to data from the Financial Services Authority (OJK), the loan at risk (LaR) ratio decreased to 9.52% in September 2025, down from 9.73% in the previous month.

Proactive Risk Management

Despite the positive trend in loan quality, numerous major banks have proactively increased their provisioning expenses throughout the January–October 2025 period. This strategic move demonstrates the sector's commitment to maintaining asset stability and preparing for potential economic risks. The increased provisioning reflects banks' prudent approach to managing potential credit risks amid ongoing global economic uncertainties.

Sector Outlook

The banking sector's proactive measures indicate a cautious optimism about future economic conditions. While the improving LaR ratio suggests better credit quality, the decision to maintain or increase provisioning levels highlights the industry's awareness of potential challenges ahead. This balanced approach between risk management and business continuity positions Indonesian banks to navigate the complex economic landscape effectively.