Despite higher third-party funds, Indonesian banks remain risk-averse, prioritizing securities over loans—raising concerns about real-sector financing and economic recovery. This conservative stance comes amid global economic uncertainty and signals potential headwinds for Indonesia’s growth momentum, even as deposit levels continue to rise.
Key Facts & Background
- Annual credit growth fell to 7.77% yoy in June 2025, down from 8.43% yoy in May.
- Primary cause: Banks are exercising greater caution in lending due to economic uncertainty.
- Deposit growth (DPK) outpaced lending, rising 6.96% yoy, with banks preferring low-risk securities over loans.
- Investment loans grew the fastest (12.53% yoy), followed by consumer loans (8.49% yoy) and working capital loans (4.45% yoy).
- Sharia financing expanded 8.37% yoy, but MSME lending remained weak at just 2.18% yoy.
- BI Governor Perry Warjiyo urged banks to accelerate lending to priority sectors (trade, agriculture, business services) to boost economic recovery.
- BI will strengthen coordination with the Financial System Stability Committee (KSSK) to stimulate credit expansion.
Strategic Implications
The slowing credit growth in Indonesia’s banking sector presents significant implications for the nation’s economic recovery trajectory. While the 7.77% yoy expansion in June 2025 remains positive, the deceleration from May’s 8.43% growth raises concerns about financing availability for crucial sectors. This cautious lending approach by banks, despite growing third-party funds, suggests financial institutions are prioritizing risk mitigation over economic stimulus – a stance that could potentially constrain business expansion and job creation.
The banking sector’s risk-averse behavior reflects underlying concerns about asset quality and economic uncertainty. The widening gap between deposit growth (6.96%) and credit expansion indicates banks are preferring low-risk securities over business loans, potentially starved the real economy of much-needed capital. This conservative posture may require policy intervention, with BI likely to consider measures such as targeted liquidity provisions or credit guarantees to encourage lending, particularly to priority sectors like trade, agriculture and business services that are crucial for broad-based economic recovery.
The relative strength in investment loans (12.53%) and sharia financing (8.37%) offers promising channels for growth, suggesting that targeted interventions in these areas could help offset weakness in other segments. Ultimately, restoring robust credit growth while maintaining financial system stability will be key to supporting Indonesia’s economic expansion in the face of global uncertainties.