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The year 2025 can be considered a period of planting. Bank Indonesia and the Ministry of Finance have tried every means through interest rate cuts, liquidity injections of IDR 201 trillion, additional KLM incentives, spending focused on enhancing domestic consumption, tax incentives, and more.
- The year 2025 can be considered a period of planting. Bank Indonesia and the Ministry of Finance have tried every means through interest rate cuts, liquidity injections of IDR 201 trillion, additional KLM incentives, spending focused on enhancing domestic consumption, tax incentives, and more. However, all these efforts require time to truly bear fruit in the form of accelerated credit growth, which has not yet been significantly visible until the end of 2025. The question is, will we reap the rewards in 2026?
- Global interest rates are expected to remain supportive of liquidity growth, although risks such as trade tensions, geopolitical instability, and elevated long-term bond yields persist. While this environment could facilitate increased domestic liquidity, the limited recovery in commodity prices may constrain its impact. As a result, government spending will continue to play a pivotal role in driving liquidity, with fiscal and monetary policies remaining essential to translating this liquidity into loan growth.
- With signs of improvement in the real sector emerging in late 2025, the prospects for loan growth recovery are strengthening. Bank Indonesia’s expanded mandate to support economic growth and job creation may lead to further policy measures aimed at stimulating lending, and potentially another 50-75bps cut to further support it. However, these efforts could be limited by the necessity of maintaining stability, particularly in managing rupiah depreciation. The improving liquidity conditions and recovering loan demand may also boost third-party fund growth in 2026, amidst the trade surplus moderates. Therefore, we may see both loan and deposits growth to remain resilient between 8-10% in 2026.
- The disparity in loan and deposit performance between large and small banks is increasingly pronounced due to intensified competition within a constrained market segment. The trend of lower cost of fund, along with asset diversification, has been crucial in sustaining profitability, particularly for small to medium-sized banks. Since the industry will face an era of declining interest rates at least for the next two years, banks will maintain profitability by increasing non-interest income through the expansion of digital products and services, pursuing market growth (some via acquisitions), and balancing dynamic preferences in asset composition (bonds vs loans). This will be the trend we see in 2026.
