Islamic banking financing in Indonesia is projected to expand by around 10% in 2025, whilst maintaining its overall share of about 8% within the country’s banking sector, according to Fitch Ratings.
The sector’s growth is expected to be supported by government-driven consolidation efforts, the introduction of new services such as bullion banking, and financial inclusion programmes promoted by authorities.
Fitch said in its Indonesian Islamic Banks Monitor report released on 5 February 2026 that profitability is likely to remain stable, as strong financing growth and healthy net operating margins are expected to offset rising credit costs.
Among industry players, PT Bank Syariah Indonesia (Persero) Tbk is expected to maintain its leading position with roughly 40% market share.
Fitch noted that whilst new major players have entered the segment, competition is unlikely to shift significantly as many of these institutions are spin-offs from existing banking operations.
Banks are also expected to benefit from Indonesia’s large underbanked Muslim population, which provides strong potential for future expansion.
Indonesia ranks among the leading global markets for Islamic finance. According to S&P, the country’s Islamic banking sector is expected to grow faster than regional counterparts due to its relatively smaller starting base.
However, around 80% of Islamic banks in Indonesia have limited capital, placing them in the lowest regulatory tier. Fitch said this restricts the range of services they can offer and reduces competitive pressure on the largest institutions.
The non-performing financing ratio of Islamic banks is projected to rise slightly to around 2.5% by the end of 2026, up from 2.3% in November 2025, largely due to the sector’s heavier exposure to retail financing.
At the same time, Islamic banks maintain strong loss-absorbing buffers, with reserve coverage standing at 146%.
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