Indonesia private banks cautious on loan growth: UOBKH

Funding conditions have improved since Q2, although costs remained elevated.

Indonesia’s private banks remain cautious on loan growth whilst state-owned banks outperform thanks to government liquidity, said UOB Kay Hian (UOBKH).

Funding conditions of banks have improved since Q2 2026, although costs remained elevated, said UOBKH analyst Posmarito Pakpahan in a report published on 21 September.

Funding pressure has eased, but banks have responded differently, Pakpahan said.

"Private banks remain relatively cautious on loan growth, while SOE banks continue to grow faster, supported by government liquidity or excess budget balance (SAL) placements," Pakpahan said.

Bank loans grew between 10.5% to 10.8%, whilst current account and savings account (CASA) growth was between 10.8% to 81%. Funding costs are yet to fully reflect the improvement in liquidity conditions, Pakpahan said, with interest expense declining in some banks and increasing in others.

Slower loan growth can improve banks’ funding equation, Pakpahan said.

Capital ratios fell materially in H1 2026, between 180 basis points to 270 basis points across three banks. UOBKH expects part of the decline to be recovered through second half earnings.

“However, if loan growth continues to outpace internal capital generation, maintaining the current pace would require greater retention of earnings,” Pakpahan said.

In a separate report, S&P Global Ratings said that Indonesian banks are expected to face margin pressure through the end of H1 2027.