Indonesian Banking Sector Sees Potential Growth in Mortgage Lending

Extended Tax Incentives to Boost Housing Demand

The Indonesian government's decision to extend the 100% Value-Added Tax (VAT) subsidy on home purchases through 2026 has been welcomed by major banking institutions, particularly Bank Central Asia (BCA). The policy is expected to stimulate demand in the housing market and consequently boost mortgage lending (KPR). According to Welly Yandok, Executive Vice President of Consumer Loan at BCA, the tax incentive will have a broad impact on the economy by encouraging developers to accelerate housing construction, thereby revitalizing related industries such as building materials and construction services.

Banking Sector's Positive Response

BCA is planning to introduce special promotions for customers who benefit from the VAT subsidy. These promotions include reduced mortgage processing fees, aimed at easing the financial burden on homebuyers. In 2025, about 26% of BCA's total mortgage realizations benefited from the VAT subsidy. With the incentive now extended through 2026, the bank is optimistic about further growth in mortgage lending. Welly Yandok emphasized that the subsidy makes home purchasing more affordable for customers, thereby potentially improving the quality of mortgage loans by reducing the likelihood of defaults.

Regulatory Perspective

The Financial Services Authority (OJK) also supports the government's initiative, believing that the extended tax incentive will likely drive higher growth in bank mortgage lending. Dian Ediana Rae, OJK's Chief Executive for Banking Supervision, noted that various government programs, especially those that boost consumer purchasing power and stimulate economic sectors like property, will encourage banks to expand their lending and enhance financial intermediation. However, she also highlighted the importance of other supporting factors, such as the public's ability to make loan repayments, in sustaining the growth of mortgage credit.

Implications for the Banking Sector

The extended VAT subsidy is seen as a positive development for the banking sector, particularly for banks with significant mortgage portfolios. Banks are expected to optimize their support for government policies while maintaining prudent risk management practices. The liquidity condition of banks, largely funded by third-party deposits, is expected to remain robust, supporting their ability to extend credit, including mortgages. As the banking sector continues to navigate the evolving economic landscape, the OJK is urging banks to balance their lending activities with risk management to ensure sustainable growth.