Higher provisions to squeeze Indonesia bank profits as geopolitical risks mount

An expectd 5% GDP growth should support an 8% to 9% loan expansion in 2026, said Fitch Ratings.

Rising policy uncertainty and geopolitical tensions pose downside risks to Indonesia's banking operating environment, but large banks should not be heavily affected in the near term, according to Fitch Ratings.

Indonesia’s GDP growth of around 5% should support health loan expansion of between 8% to 9% in 2026, the company said.

However, profitability is likely to face some pressure from higher credit provisions, even as net interest margin compression moderates.

“That said, adequate loan-loss coverage means we do not expect significant credit losses,” Fitch said.

Indonesia’s banking system’s liquidity has been expected to stay challenged throughout 2026 as rupiah and rates remain under pressure, according to an earlier report by CreditSights, a Fitch Solutions Service.

Higher energy prices will narrow fiscal buffers and reduce the room for fiscal spending to aid liquidity and growth, CreditSights had said in April 2026.

The country’s loan demand was also expected to continue being weighed down by weak consumption and by MSMEs in the first six months of the year, Maybank Kim Eng analysts earlier estimated.