Indonesia's Banking Sector Faces Credit Growth Challenges

Diverging Views on Credit Slowdown

Indonesia's credit growth has plateaued at around 7% despite significant liquidity injections into state-owned banks. The government's placement of Rp200 trillion in state-owned banks (Himbara) in September has not yet translated into increased lending activity. There is a notable divergence in views between the government and Bank Indonesia regarding the causes of this slowdown.

Government's Perspective

Finance Minister Purbaya Yudhi Sadewa attributes the sluggish credit disbursement to banks' risk-averse behavior rather than low demand. He argues that banks prefer to invest in more secure instruments like government bonds rather than extending loans to businesses. Purbaya cited a recent case handled by the Task Force for Accelerating Government Strategic Projects (P2SP) where a company, PT Mayer Indah Indonesia, struggled to secure financing from state-owned banks despite being established since 1973.

Bank Indonesia's View

In contrast, BI Governor Perry Warjiyo suggests that the low credit growth is primarily due to weak demand and businesses adopting a wait-and-see approach. According to Warjiyo, the high level of undisbursed loans, which reached Rp2.5094 quadrillion in November 2025 (23.18% of total available credit), indicates that demand is not robust. He pointed to factors such as businesses optimizing internal financing and slow reductions in lending rates as contributing to the sluggish demand.

Credit Market Dynamics

The banking sector's liquidity position appears robust, with the Liquid Assets to Third-Party Funds (AL/DPK) ratio improving to 29.67%. Third-party funds grew by 12.03% YoY in November 2025, supporting banks' capacity to lend. However, the growth in credit to Micro, Small, and Medium Enterprises (UMKM) actually contracted by 0.64% YoY, reflecting increased credit risk perceptions in this segment.

Outlook and Implications

Bank Indonesia forecasts credit growth for 2025 to be at the lower end of the 8%-11% YoY range, with expectations of improvement in 2026. The contrasting views between the government and BI highlight the complexity of factors influencing credit growth, ranging from demand-side constraints to supply-side banking behavior. The situation underscores the challenges in stimulating credit growth despite ample liquidity in the system.