Indonesian MSME Loan Growth Slows Down, Banks Exercise Caution on New Lending

Decline in MSME Credit Growth

The credit growth for micro, small, and medium enterprises (MSME) in Indonesia has shown a significant slowdown. According to data from Bank Indonesia (BI), MSME loans declined by 0.64% year-on-year to reach Rp 1,497.4 trillion by November 2025. This decline is more pronounced compared to the previous month's contraction of 0.11%. The slowdown in MSME loan growth indicates a lack of vibrancy in this sector as we approach the end of 2025.

Non-Performing Loans Remain Stagnant

The non-performing loan (NPL) ratio for MSME loans stood at 4.5% as of November 2025, showing no improvement from the previous month. This stagnation in NPL ratios suggests that banks are facing challenges in managing credit risk associated with MSME lending. The combination of slowing loan growth and stable NPL ratios is likely to make banks more cautious in their lending practices moving into 2026.

Implications for 2026 Lending

The current trends in MSME lending are expected to influence banks' strategies for new credit extension in 2026. With the sector showing signs of sluggishness and credit risk remaining a concern, banks are likely to adopt a more cautious approach to new lending. This cautious stance could potentially impact the growth prospects of MSMEs, which are typically considered engines of economic growth in Indonesia.

Conclusion

The slowdown in MSME loan growth and the stable but elevated NPL ratios are key factors that will shape the banking sector's approach to lending in 2026. Banks will need to balance their risk management practices with the need to support economic growth through credit extension to viable MSMEs.