Indonesian banks’ liquidity likely to improve in H2

NIM is expected to compress for the Q2 2025 period.

Indonesian banks’ liquidity is expected to improve in the second half of the 2025 on the back of the recent rate cut and higher foreign borrowing limits.

Net interest margins (NIM) are also expected to compress in Q2 2025 on the back of this tighter liquidity.

“We expect tighter liquidity will continue to pressure the net interest margin in Q2 2025. However, we believe liquidity could ease in H2 2025 from the impact of the easing monetary policies and higher fiscal spending realisation in H2,” said UOBKH analyst Posmarito Pakpahan.

Liquidity remains tight in the banking system despite slowing loan growth, according to a report by UOB Kay Hian (UOBKH). Money supply (M2) growth decelerated to 5.1% in April 2025 from 6.1% in March 2025, and deposits only grew 4.4% in the same period.

The lowering of secondary reserve ratio (PLM) alongside the rate cut in May 2025 to 5.5% are expected to free up funds.

“By lowering the PLM, BI expects this to free up funds that banks have currently allocated to the government or BI securities, encouraging them to channel these funds into loans,” said Pakpahan.

Meanwhile, increasing banks’ foreign borrowing limits could provide flexibility for banks with limited liquidity buffers to secure external financing and address liquidity needs, Pakpahan added.