Indonesia loan growth cooled in 2025 as 12% target looks tough: UOBKH

The central bank successfully addressed funding constraints, but borrowers remain cautious.

Indonesia’s banking sector enters 2026 in “a more stable position” with improving liquidity and easing funding costs, although micro and SME loans may still weigh on credit growth, according to a report by UOB Kay Hian (UOBKH).

Policy measures by the Bank Indonesia (BI) have successfully addressed funding constraints, said UOBKH analyst Posmarito Pakpahan. The central bank has adopted an accommodative stance and enacted an IDR201t liquidity injection in 2025.

“Banks have regained a more comfortable funding buffer, enabling them to reduce reliance on special-rate deposits,” Pakpahan wrote in a sector update report published on 19 January 2026.

Whilst supply in liquidity has increased, credit growth slowed in 2025.

“Overall loan growth in 2025 trended lower compared with prior years, with industry credit expansion moderating from double-digit growth toward the mid-single-digit range as borrowers remained cautious and undisbursed pipelines persisted,” Pakpahan said.

UOBKH sees early improvement in corporate sentiment and balance sheets supporting a gradual recovery in working capital and investment loans.

BI’s target of an 8%-12% loan growth is “reasonable”, said Pakpahan, but reaching the upper end will require broader-based recovery in corporate capital expenditure (capex) and MSME activity.

Banks’ credit costs are entering a normalisation phase, the report said, with banks having absorbed most of the post-pandemic asset quality clean-up.

Micro and informal segments remain the main constraint on system growth, however.

“[With] micro and SME borrowers still exhibiting uneven repayment behaviour, we expect credit costs to be broadly flat to slightly higher,” Pakpahan said.

A separate report by Nomura Securities expects that Indonesian banks’ credit costs may remain elevated in 2026 on weather-driven risk. However, major banks should still be able to see earnings growth.

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

The Sumatra flood also introduced mild upside risk to provisioning in early 2026, UOBKH said.

An earlier report by the brokerage firm named Bank Syariah Indonesia (BRIS) and Bank Rakyat Indonesia (BRI) as likely to be most affected by floods in Sumatra.