More loans, more growth? Indonesian banks think so

Indonesia’s banking industry is entering 2025 with one overarching theme: lending.

Bank Indonesia (BI) has announced a raft of liquidity incentives aimed at increasing lending among banks. The country’s central bank cut its benchmark rate by 25 basis points to 5.75% in January 2025 while reducing the deposit facility and lending facility rates to 5% and 6.5%, respectively.

BI hopes these incentives and others will boost bank lending growth to 11% to 13% this year. As of the second week of January, the incentives have amounted to 295 trillion rupiah (US$18.1 billion), a 13.9% increase from the amount disbursed by the end of October 2024.

For 2025, the liquidity incentives will be directed at sectors that fuel growth and job creation, such as agriculture, manufacturing, transportation, real estate, MSMEs, tourism, and the creative economy.

During a press conference on January 15, BI deputy governor Juda Agung highlighted how the liquidity incentives have been effective in helping bank credit growth reach its target of over 10% in 2024.

“Without liquidity incentives, growth would have only been 9.6%,” he said.

The central bank isn’t the only one giving incentives. Indonesia’s Financial Services Authority (OJK) is also providing stimulus to local banks, particularly those actively financing housing mortgages under the government’s 3-million-homes program.

These incentives could come in the form of downpayment subsidies, notes Dian Ediana Rae, chief executive of banking supervision at OJK. 

Getting bullish

Several Indonesian banks agree that these incentives will propel credit expansion this year.

The lower benchmark rate would improve liquidity and encourage lending rate reductions, leading to “stronger credit demand across various sectors,” explains Ashidiq Iswara, Bank Mandiri’s corporate secretary.

In addition to spurring credit growth, the improved liquidity could also help third-party funds grow, which in turn could lower the bank’s cost of funds.

Not all are happy

Going the extra mile