Indonesian banks are likely to face elevated credit costs in 2026 due to weather-related risks, but large lenders should still be able to post earnings growth.
Weather-driven risks seen in 2025 could become more frequent in parts of Indonesia over the next year, potentially keeping credit costs high, said Tushar Mohata of Nomura Securities’ Indonesia Research Team. Flooding in Sumatra last December is expected to have most affected Bank Syariah Indonesia (BRIS) and Bank Rakyat Indonesia (BRI), with around 5% of the banking sector’s exposure estimated to have been impacted, according to UOB Kay Hian.
Even so, credit costs in 2026 are expected to be broadly stable, or slightly lower, compared with 2025, Mohata and Nomura Securities said. Major banks are forecast to deliver earnings growth of 1% to 7% in 2026, reversing the profit declines seen at some lenders in 2025.
Lending rates are also expected to stabilise near their lows from the third quarter of 2025, which should support steadier margins. Smaller banks may continue to lag due to weaker deposit bases and higher funding costs, Mohata noted. He added that major banks should be able to sustain or modestly expand net interest margins, supporting more resilient earnings in 2026.
Separately, S&P Global Ratings said Bank Mandiri, Bank Rakyat Indonesia, and Bank Negara Indonesia are likely to see lower credit risks, citing “substantial and sustained improvements” in problem loans across the sector as of December 2025.
Liquidity conditions are expected to remain manageable, supported by government measures and a more favourable fiscal spending environment, Mohata said.
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