Istimewa
THE 2025 calendar has closed. Bankers face 2026 with trepidation. The year of the Fire Horse is said to ignite courage, passion, and the potential for major leaps. But if the Indonesian economy were likened to a horse, it appears to be struggling and exhausted.
The primary cause is the collapse in purchasing power due to a shrinking middle class and limited formal employment opportunities. The middle class, the driver of consumption, has shrunk by 9.48 million people, from 57.33 million in 2019 to 47.85 million in 2024. The manufacturing sector, particularly labour-intensive ones, which are key to employment, continues to be battered by layoffs. The number of layoffs in 2024, which reached 77,965, continues to rise, with the number of workers affected by layoffs reaching 79,302 from January to November 2025. The limited employment opportunities have left Indonesia besieged by informal businesses.
The dominance of the informal sector reduces the quality of economic growth and depresses tax revenues. It’s no wonder that tax revenue targets are consistently missed. Indonesia’s tax ratio as of September 2025 was only 8.58%, the lowest since the pandemic, far from the target of 10.02%. Weak purchasing power is suppressing demand for superior goods like cars and driving demand for inferior goods like instant noodles, used clothing, and public transportation.
Just look at the sales of superior goods like cars, which have continued to decline since 2023. From January to October 2025, car sales reached only 635,844 units, a 10.50% decline compared to the same period last year of 711,000 units. Automotive sales in 2024 plummeted 13.90% to 865,723 units.
Meanwhile, motorcycle sales rose slightly by 0.4% to 5.95 million units during the first 10 months of 2025. In 2024, annual motorcycle sales grew by 1.5% to 6.3 million units. The decline in car sales and the rise in motorcycle sales indicate weak purchasing power, prompting people to shift to more affordable transportation options.
Therefore, the government’s Rp 200 trillion in liquidity has not immediately flowed to the real sector. This is because the business world is struggling. Many factories are closing due to competition, weak market demand, refocusing and relocation, and governance issues. The plummeting rupiah exchange rate, which reached Rp 16,796.48 per US dollar (as of December 23, 2025), has also increased the cost burden for industries that rely on imported raw materials. Consequently, overall credit growth remains on a slow track. As of November 2025, annual credit growth was 7.74%. Although higher than in September or October, it remains below Bank Indonesia’s (BI) growth target of 8%-11% last year. BI itself has lowered its benchmark interest rate five times to stimulate credit growth.
According to Infobank Research Bureau, credit growth in 2026 will still face three challenges: The first: the global economic uncertainty due to continued geopolitical escalation, trade tariff policies, and weakening global commodity prices. The World Bank, in its Commodity Markets Outlook report, projects commodity prices will fall to their lowest level in 2026, marking the fourth consecutive year of decline.
The second: the fiscal risk, as the Prabowo Subianto administration is currently burdened by debt, estimated to reach Rp 9,400 trillion by the end of 2025. In 2026, the government will have to repay maturing debt and interest with the total abount of Rp 1,433.40 trillion. This figure is higher than Rp 1,352.48 trillion in 2025.
Liquidity will be tight as banks must compete with Government Securities (SBN) issued by the government and Bank Indonesia Rupiah Securities (SRBI) issued by Bank Indonesia (BI). The more attractive yields encourage investors to purchase SBN or SRBI. The impact is that funds that should be parked in banks are reduced because they are used for government spending or public investment. Tight liquidity naturally makes it difficult to lower lending rates.
The third: the increasing credit risk. Amidst the economic downturn, the risk of default increases, and some individuals or companies try to survive by profiting at the expense of others. Non-performing loans trap can be deliberately created by delinquent debtors who fail to meet payment obligations, use credit to repay debt, or use credit inappropriately (side streaming). Low-quality credit at a number of banks increased in 2025.
Although the industry-wide loan at risk (LAR) remained stable at 9.41% as of October 2025, 50 banks had double-digit LARs, with 17 of them recording LARs above 20%. Banking non-performing loans (NPLs) also showed an increasing trend, from 2.08% in December 2024 to 2.24% in September 2025 and 2.25% in November 2025. NPLs are a thorn in the side and can be a nightmare for bank directors. Potential bank losses due to non- performing loans can erode investor confidence. Even at state-owned banks, non-performing loans can become a horrific story when they are included in the article on state losses. Law enforcement officials are very “quick” in investigating the process of granting non-performing loans upon hearing about non-performing loans at regional development banks (BPD) and state-owned enterprises (BUMN). non-performing loans, proposed from below and decided collegially, can be disastrous for bankers when they enter the legal realm.
This situation has the potential to continue, especially with the enactment of the fourth revision of the BUMN Law. Law Number 16 of 2025, passed by the House of Representatives (DPR) in October 2025, enacted substantial changes, including changing the nomenclature of the Ministry of State-Owned Enterprises to the State-Owned Enterprise Regulatory Agency (BP BUMN), strengthening governance, professionalism, and efficiency, and prohibiting ministers and deputy ministers from holding concurrent positions in SOEs, with the aim of making SOEs more professional and competitive.
|
If bankers are haunted by the nightmare of criminalizing of non-performing loans and are afraid to disburse credit, this is contrary to the current conditions and needs of economic development. |
However, there is scope for intervention by law enforcement agencies, such as the Corruption Eradication Commission (KPK) and the Attorney General’s Office, regarding corruption crimes related to business risks that can occur in business institutions such as SOEs. Likewise, the Supreme Audit Agency (BPK) has regained the authority to audit SOEs to improve transparency and governance.
This provision has once again caused anxiety among professionals in state-owned enterprises (SOEs). They must not make decisions that result in losses. If this happens, they could be prosecuted by law enforcement officials under the state losses law. There are numerous examples of this, including Ira Puspadewi, the former President Director of PT ASDP Indonesia Ferry (Persero). Despite being a professional and not proven to have committed any corruption, she was forced to face charges of causing state losses. After the case went viral and garnered public sympathy, President Prabowo Subianto intervened and granted her rehabilitation. This case demonstrates the weak understanding of law enforcement officials regarding business functions and corporate risk.
Previously, there was Karen Agustiawan, the former President Director of Pertamina (Persero), who, through PT Pertamina Hulu Energi, invested a 10% stake in Australia’s Basker Manta Gummy Block in 2009. Due to production discrepancies between initial projections, the investment was deemed to have caused state losses. Karen Agustiawan (at that time, she was the President Director of Pertamina) and Ferederick Siahaan (at that time, he was the Pertamina’s Finance Director) were charged with corruption and sentenced to eight years in prison by the Corruption Court and the High Court.
Many similar stories remain, including those still in prison. Six officials from PT Aneka Tambang Tbk were accused of causing Rp 9 trillion in state losses. Also, the directors of three regional development banks (BPDs), including Bank DKI (Bank Jakarta), Bank Jateng, and BPD West Java-Banten (Bank BJB), were accused of causing state losses. Yet, at that time, when the directors of these banks provided credit to PT Sri Rejeki Isman Tbk (Sritex), the company was still in good health; it generated profits and had sufficient liquidity. The fact that, now, PT Sritex suffers due to market conditions is certainly part of the business risk.
In addition to the three regional development banks, the Attorney General’s Office is also investigating the provision of credit to Sritex subsidiaries by state-owned banks such as Bank Negara Indonesia (BNI), Bank Rakyat Indonesia (BRI), and the Export-Import Financing Agency (LPEI). Meanwhile, the 24 private banks that also provided credit to Sritex have not faced any legal issues. Even if there are violations of the basic principles of providing credit facilities, private banks are not involved in state finances and only pose potential losses to the company.
A banker’s dilemma, especially at a state-owned bank, is this: Even if there is no mens rea, or malicious intent to commit corruption and enrich themselves, when a business decision is made and the risks become a reality, they face prosecution and imprisonment. A law enforcement approach that ignores business dynamics and business judgment rules has the potential to cripple the strategic role of state and regional banks in supporting the economy. If non performing loans continue to be considered state losses, banks will seek safety by becoming “lazy banks,” or the school of thought where banks prefer low-risk, government-backed investments such as government bonds to lending to the high-risk private sector.
Furthermore, banks adhere to the “bank follows the trade” paradigm and uphold the principle of prudence. Take, for example, regional development bankers who choose the safe route by channeling credit to local government employees. Why go to the trouble of building competence in the corporate market if the risk of their business decisions is later deemed criminal? Better to be known as a “local government’s cashier” than to be good at disbursing investment or working capital loans and end up in prison. State-owned banks also appear to be increasingly aggressively promoting consumer loans, which carry lower risks than corporate loans.
If bankers are haunted by the nightmare of criminalizing of non-performing loans and are afraid to disburse credit, this is contrary to the current conditions and needs of economic development. The credit-to-GDP ratio in Indonesia is only 40%, far below the ratio in developed countries, which has exceeded 100%. The government wants to accelerate Indonesia’s economic growth to 8% to expand employment opportunities and reduce poverty. Banking credit is crucial to encourage so that the public and businesses can use it for various purposes, such as consumption, working capital, and investment.
The primary cause is the collapse in purchasing power due to a shrinking middle class and limited formal employment opportunities. The middle class, the driver of consumption, has shrunk by 9.48 million people, from 57.33 million in 2019 to 47.85 million in 2024. The manufacturing sector, particularly labour-intensive ones, which are key to employment, continues to be battered by layoffs. The number of layoffs in 2024, which reached 77,965, continues to rise, with the number of workers affected by layoffs reaching 79,302 from January to November 2025. The limited employment opportunities have left Indonesia besieged by informal businesses.
