Indonesian banks’ credit costs may stay high in 2026 on weather risk

Major banks should still be able to deliver positive earnings growth of 1%-7%.

Indonesian banks’ credit costs may remain elevated in 2026 on weather-driven risk, but major banks should still be able to see earnings growth.

During 2025, there were some weather-driven risks which could become more frequent in some parts of Indonesia in the next twelve months, said Tushar Mohata of Nomura Securities’ Indonesia Research Team. These could result in credit costs remaining elevated.

Floods hit the Sumatra region in December last year, with Bank Syariah Indonesia (BRIS) and Bank Rakyat Indonesia (BRI) expected to be amongst financial institutions (FI) most affected, according to a separate report by UOB Kay Hian (UOBKH). Overall banking sector exposure hit by the floods was estimated at around 5%.

Compared to 2025, however, credit cost should hold broadly stable and even marginally lower relative to 2025, Mohata and Nomura Securities said.

Major banks should be able to deliver positive earnings growth of between 1% to 7% in 2026, compared to negative profit growth of some banks in 2025.

“Also, banks’ lending rates in 2026F are likely to stabilize at around bottom levels from Q3 2025—giving opportunities for more stable margins. Non-major banks might continue to trail, reflecting weaker deposit structures and relatively high funding costs,” Mohata said.

“Even with moderate loan-growth expectations, we see major banks sustaining or modestly expanding NIMs—supporting more resilient earnings profiles in 2026F,” he added.

Specifically, Bank Mandiri, Bank Rakyat Indonesia, and Bank Negara Indonesia should see reduced credit risks, according to S&P Global Ratings in a separate report.

The wider Indonesian banker sector saw “substantial and sustained improvements in weak loans,” the ratings agency said in December 2025.

Liquidity conditions should stay manageable, aided by government initiatives and a more supportive fiscal-spending backdrop, Nomura’s Mohata said.