BANKING capital is growing. Bankers must also think hard about how to utilize their increasingly large capital so that their return on investment provides optimal returns for shareholders. Infobank Research Bureau noted that, seeing from the perspective of the industry, the capital adequacy ratio (CAR) of commercial banks continued to rise, from 22.89% in 2020, to 25.66% in 2022, to 26.69% in 2024, and currently remains above 25%. Only three banks have CARs below 18%. Even this is still safe, as high-risk indicators exist for banks with CARs below 12%.
Meanwhile, CARs above 25% indicate ineffective capital utilization, as experienced by 47 commercial banks.
There’s certainly nothing wrong with having excess capital. In fact, the banking industry has strong leverage to boost credit, which still has ample room for growth, as the loan-to-gross domestic product (GDP) ratio remains at 40%. However, this is not as easy as flipping a switch.
Credit demand remains weak, with year-on-year growth of only 7.70% as of September 2025. In fact, undisbursed loans continue to mount, reaching Rp 2,374.8 trillion, a 35% increase compared to September 2024. This represents 22.54% of the available credit ceiling.
The banking capital adequacy ratio is increasing due to slow growth in risk assets. According to Infobank Research Bureau, the average bank credit growth during the 10-year period 2015-2024 was only 7.68% per year, far below the 21.11% growth rate in the 2005-2014 period.
Meanwhile, bank core capital increased by an average of 16.32% per year. Although many banks’ productive assets have been eroded by non-performing loans over the past five years, most banks have still recorded increases in core capital.
If credit expansion in the next decade is only 10% per year, bank capital is predicted to become even stronger. Moreover, many banks will seek to upgrade, either on their own initiative or due to recommendations from the Financial Services Authority (OJK). Last month, the OJK issued a letter urging 38 banks in KBMI 1 to consolidate. This could be done through additional capital or acquisitions and mergers.
The owners of these banks must consider carefully whether to continue increasing their capital or consider selling them immediately. This presents a dilemma. Even if they choose to increase their capital to Rp 6 trillion, much of the bank’s capital is still idle. According to Infobank Research Bureau, the average CAR for banks in the KBMI 1 category, comprising 60 banks, reached 45.61%.
Therefore, the Financial Services Authority (OJK) should not force them, let alone pressure them. Besides their still substantial CAR, the minimum capital requirement is Rp 3 trillion, and KBMI 1 capital is below Rp 6 trillion. Furthermore, many small banks are well- managed and growing healthily.
However, the OJK’s appeal is a strong signal that the resilience of the Indonesian banking sector is being tested by four structural challenges: technological disruption, accelerated digitalization, global uncertainty, and cyber vulnerability. Therefore, bank owners and managers cannot afford to be complacent and must ensure their banks are able to compete healthily amidst these four challenges.
Like a ship, large capital reflects a bank’s size and ability to carry a large load. Although their carrying capacity is still far greater than their cargo, large ships have the resilience to withstand waves. Similarly, large size and capital provide significant resilience, reliable personnel, the ability to build digital infrastructure, and the ability to enter broader markets, such as consumer banking. Because the consumer banking business requires significant resources, this market is dominated by large banks with substantial capital and customer bases.
MANDIRI vs BCA
In 2013, Bank Mandiri’s leadership shifted from Zulkifli Zaini to Budi Gunadi Sadikin (BGS). Unlike Zulkifli, who excelled in corporate banking like his predecessor, Agus Martowardojo, BGS was a banker with extensive experience in retail banking. Therefore, upon assuming the role of Bank Mandiri’s number one position, BGS set his sights on overtaking Bank Central Asia (BCA), the king of retail banking.
Since Agus Martowardojo’s leadership, retail banking has been designated as one of Bank Mandiri’s priority segments, alongside wholesale banking. However, BGS’s ambition to become the king of retail banking confused his staff, given that Bank Mandiri’s core competency lies in corporate banking.
Despite this, BGS successfully led Bank Mandiri to surpass BCA. His successors, Kartika Wirjoatmodjo and Royke Tumilaar, have successfully made Bank Mandiri’s consumer banking even more prominent in the market.
For at least the past 10 years, Bank Mandiri’s consumer lending has outperformed BCA. In 2015, when Bank Mandiri was led by BGS, now the Minister of Health, Bank Mandiri’s consumer credit reached Rp 118.15 trillion, surpassing BCA’s Rp 102.78 trillion. As of September 2025, Bank Mandiri’s consumer credit reached Rp 414.04 trillion, while BCA’s was only Rp 179.58 trillion. This clearly shows that Bank Mandiri’s consumer credit, which Riduan took over as president director last August, has increasingly outpaced BCA. This achievement also confirms Bank Mandiri’s position as the king of consumer banking, with a 17.95% share of consumer credit in the banking industry.
“This figure shows that the consumer segment remains a key pillar in Bank Mandiri’s overall business growth. Over the past three years, Bank Mandiri’s consumer credit has grown by an average of around 10.5% per year,” Saptari, Bank Mandiri’s Director of Consumer Banking, told Ari Nugroho of Infobank last month.
However, despite successfully overtaking BCA in the consumer credit market, Bank Mandiri cannot fully boast. In the consumer credit market, BCA currently ranks third after Bank Mandiri and BRI. Despite only 2.99% growth in consumer credit as of September 2025, BCA managed to become the bank with the highest profit, with a value of Rp 43.41 trillion, representing a 5.66% year-on-year growth. On the bottom line, BCA actually managed to outperform Bank Mandiri and BRI, whose profits declined by 10.22% and 9.10%, respectively.
In 2024, Bank Mandiri became the bank with the highest profit, with a value of Rp 61.16 trillion, overtaking BRI, which maintained its position as the largest profit generator in 2023, at Rp 60.42 trillion. Until last year, BCA was only the bank with the third-highest profit, at Rp 54.85 trillion. With a market share of 13.65%, BCA’s consumer business is certainly of high quality and respected in the market, thus making it the most profitable bank in the country.
BCA’s soaring profits demonstrate that the consumer banking business is not just about consumer loans. Other strengths that serve as indicators of BCA’s success include its control of low-cost funds and a large customer base of 43 million accounts, enabling the bank to generate significant fee-based income. These strengths are what enabled BCA to emerge as the highest-profit bank this year.
Unlike Bank Mandiri, which established its retail banking excellence in 2008, BCA has been building its presence for a long time. In the early 1990s, BCA began developing automatic teller machines (ATMs). By pioneering electronic transaction services, BCA has long been a respected player in the consumer banking market. As of September 2025, BCA’s low-cost funds (TPF) portion reached 82.55%, surpassing Bank Mandiri’s 72.61% and BRI’s 65.51%. Therefore, it’s no surprise that BCA is the most competitive bank in both mortgages (KPR) and vehicle loans (KKB).
The race between Bank Mandiri and BCA, along with other major banks such as BRI, Bank Negara Indonesia (BNI), and Bank Tabungan Negara (BTN), illustrates the intense competition in the consumer banking market.
The intense competition has forced several foreign banks to exit the market. For example, Citibank sold its consumer credit portfolio to Bank UOB Indonesia in 2022. Similarly, Commonwealth Bank withdrew from Indonesia and sold its business to Bank OCBC NISP this year.
However, facing competition in the consumer banking business is increasingly challenging. This is because the retail banking business has undergone an evolution and revolution, driven in part by technological advances. Only large banks with strong capital are able to evolve in retail banking following the arrival of new competitors with different business models, such as financial technology (fintech) and digital banks.
Another challenge is economic development, which has reduced the size and purchasing power of the middle class. According to Infobank Research Bureau, the majority of Indonesia’s population is middle class.
However, over the past five years, the middle class has continued to shrink, from 56.35 million (20.85 percent) in 2020 to 53.83 million (19.82 percent) in 2021, 49.51 million (18.06 percent) in 2022, 48.27 million (17.44 percent) in 2023, and to 47.85 million (17.13 percent) in 2024.
The decline of the middle class is influenced by the limited employment opportunities associated with the ongoing rampant layoffs. According to data from the Ministry of Manpower, the number of layoffs continues to swell from 25,114 people in 2022, 64.855 million in 2023, 77,965 people in 2024, and is certain to be even greater in 2025. This is because, in the first 10 months of 2025, the number of layoffs reached 70.2 thousand people.
The decline in the middle class, both in terms of numbers and purchasing power, automatically slows the growth rate of household consumption, which contributes around 53%-54% to gross domestic product (GDP). This is already evident in 2024. While private consumption growth reached 4.94%, GDP growth was only 5.03%. In the third quarter of 2024, private consumption growth remained weak at 4.89%, resulting in GDP growth of 5.04%.
Despite these challenges, the consumer and retail banking sector will continue to attract banks. Consumer segments, such as long-term mortgages, are a profitable business, especially once borrowers have passed the promotional interest rate period. Furthermore, banks like state-owned banks, with already substantial profits and strong capital, are under pressure from shareholders and political parties to generate substantial profits through various means. One way is by “strangling debtors” with high interest rates for consumer customers, such as mortgages, whose instalments are smooth and low-risk. Although the low-cost funding ratio of state-owned banks has improved significantly compared to 15 years ago, mortgage interest rates are still as high as they were 15 years ago. This proves that, unlike in the corporate segment, which has a strong bargaining position, in consumer banking, like mortgages, heaven is at the feet of bankers.
Meanwhile, CARs above 25% indicate ineffective capital utilization, as experienced by 47 commercial banks.
