Executive Summary

Key insights and market outlook

Bank Indonesia (BI) reported that credit growth slowed to 7.74% year-on-year in November 2025, down from 10.79% in the same period last year ¹

. The slowdown is attributed to both demand and supply side challenges. Corporations remain cautious in expanding, reflected in Rp2.509 trillion undisbursed loans ¹³. BI has implemented various monetary easing measures, including a 125 basis point rate cut this year, but transmission to lending rates remains sluggish.

Full Analysis

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Deep Dive Analysis

Indonesia's Banking Sector Faces Headwinds in Credit Growth

Slowing Credit Expansion Amid Economic Uncertainty

Indonesia's credit growth has decelerated significantly to 7.74% year-on-year in November 2025, down from 10.79% in the same period last year ¹

. This slowdown reflects both demand and supply side challenges in the banking sector. Bank Indonesia (BI) has identified that corporations are adopting a 'wait and see' approach, resulting in Rp2.509 trillion undisbursed loans as of November 2025 ¹³.

Demand Side Challenges

The cautious corporate behavior is driven by economic uncertainty and the availability of internal funding. Many companies prefer using their internal funds rather than taking new loans due to high interest rates ¹

. This behavior is also affecting household consumption and credit demand, as consumers are hesitant to take new loans due to uncertain income prospects.

Supply Side Rigidities

On the supply side, banks are facing challenges due to high Cost of Loanable Funds (CoLF). The practice of offering special interest rates to large depositors has kept lending rates high despite monetary easing ¹

⁴. Although BI has cut the benchmark rate by 125 basis points this year, lending rates have only decreased by 24 basis points ²⁴.

Policy Responses and Future Outlook

To address these challenges, BI is strengthening its Macroprudential Liquidity Incentive (KLM) policy through both quantity and interest rate channels ¹

⁴. The central bank has adjusted the KLM incentives to encourage banks to lower lending rates. BI remains optimistic that credit growth can reach 8% by year-end, supported by robust investment loan growth of 17.98% in November 2025 ⁵.

References