Indonesian Banking Sector Sees NIM Improvement by Year-End

Positive Outlook from OJK Survey

The Indonesian banking sector is showing optimism about improving its Net Interest Margin (NIM) by the end of 2025, according to the Financial Services Authority (OJK) Business Orientation Survey for Q4 2025. The survey indicates that banks are projecting higher NIM driven by strong credit growth and improving credit quality.

Key Factors Driving NIM Improvement

1. Credit Growth: Banks are expecting continued growth in loan disbursement, which should positively impact their interest income.
2. Lower Funding Costs: The reduction in BI-Rate in September 2025 is anticipated to decrease the Cost of Funds (COF), thereby improving the margin between lending rates and funding costs.
3. Credit Quality Improvement: Expectations of better credit quality suggest that banks will face lower provisioning needs, supporting profitability.

Market Implications

The projected increase in NIM is significant as it follows a period of declining NIM trends. An improvement in NIM will likely enhance bank profitability, providing a boost to the overall banking sector's financial performance. This optimism is crucial for investor confidence and could lead to positive sentiment in the banking stocks.