Indonesian Banking Sector Sees Potential Reduction in Provisioning Costs

Improving Asset Quality to Drive Change

The Indonesian banking sector is showing signs of improvement in asset quality, which is expected to lead to a reduction in provisioning costs in 2026. Throughout 2025, banks have been allocating substantial funds towards impairment provisions, but recent trends indicate a slowdown in the growth rate of these provisions.

Key Trends in Provisioning Costs

Bank Tabungan Negara (BTN) is a notable example, with its impairment costs reaching Rp 5.28 trillion by November 2025. While this represents an increase from Rp 1.30 trillion in the same period last year, the month-to-month growth rate has been declining - from 11.24% in October to 6.11% in November. This trend suggests that the peak provisioning burden may be easing.

Implications for Banking Sector

The anticipated decrease in provisioning costs is likely to have a positive impact on the banking sector's financial performance in 2026. As banks continue to manage their asset quality and reduce provisioning expenses, they may be able to improve their profitability and capital allocation. This development is particularly significant for state-owned banks and those with significant exposure to sectors that have been under stress.