Indonesian banks’ weak loans improve with ample coverage for risks

Pockets of vulnerabilities remain in certain sectors, like the textile industry.

Three of Indonesia’s four big four banks face a stable outlook with reduced credit risks, according to S&P Global Ratings.

Bank Mandiri, Bank Rakyat Indonesia, and Bank Negara Indonesia alongside the wider Indonesian banker sector saw “substantial and sustained improvements in weak loans,” the ratings agency said.

“The banking sector's robust post-pandemic recovery and the country's sound growth prospects have reduced credit risks for banks, in our view,” S&P wrote in a press release published 9 December 2025.

Banks have reportedly improved their ratio of loans at risk to 9.7% as of June 2025, from a peak of 23.4% in 2020. Loans at risk include gross non-performing loans (NPLs), special mention, and restructured loans.

However, S&P noted pockets of stress in areas such as consumer loans and microfinance, which it said reflects a slower recovery in certain parts of the economy. Banks should have ample pre-provisioning earnings and coverage ratios to manage risks, it said.

Banks also remain susceptible to geopolitical tensions, and “fragility” of lower- and middle-income households.

“Uneven growth in Indonesia is another potential tail risk. Lower- and middle-income households remain fragile. Also, there are pockets of vulnerabilities in certain sectors, such as the textile industry, which has been on a protracted decline due to eroding competitiveness. These segments are less resilient to shocks,” S&P said.

Indonesia’s economy is forecasted to grow 5% over the next 2-3 years.

“While the external outlook has grown more uncertain, exports have been holding up well and domestic demand could improve with support from lower interest rates and the government's social programs,” S&P said.