Indonesia’s Islamic loans to grow 10% but banks capped at 8% market share

Bank Syariah Indonesia (Persero) is likely to remain dominant.

Indonesia’s Islamic banking financing is expected to grow by about 10% in 2025 but keep its share in the banking system at 8%, according to estimates by Fitch Ratings.

Government-led consolidation, new services such as bullion banking, and the government’s financial inclusion initiatives are expected to help in its growth.

“Profitability should stay resilient as strong financing growth and elevated net operating margins compensate for higher credit costs,” the ratings agency said in its latest Indonesian Islamic Banks Monitor published on 5 February 2026.

Of the banks, PT Bank Syariah Indonesia (Persero) Tbk is likely to remain dominant with around 40% of the market share, Fitch said.

“New large players have emerged but competitive dynamics within the segment are unlikely to change, as they are spin-offs of existing operations,” it said.

Banks are also expected to capitalise on the large underbanked Muslim population in Indonesia.

Indonesia is one of the world’s top Islamic finance markets. Growth of its Islamic banking sector are expected to remain higher than regional peers due to coming from a smaller base, according to S&P.

About 80% of Islamic banks in Indonesia have small capital bases that place them in the lowest regulatory classification.

This constrains the scope of services they can provide, thereby insulating the largest banks in this group from excessive competition, according to Fitch.

The non-performing financing ratio of Islamic banks are expected to edge toward 2.5% by end-2026, from 2.3% in November 2025. This will reflect Islamic banks’ heavier retail financing focus, Fitch said.

On the other hand, Islamic banks have a reserve coverage of 146%.