Indonesian banks face continued margin pressure in third quarter
High interest rates and competition for loans and deposits continued to squeeze major Indonesian banks' lending margins in the third quarter of 2026. Bank Mandiri and Bank Negara Indonesia reported further quarterly declines, while Bank Central Asia's modest recovery left its margin below the year-earlier level.
Lending outpaces deposit growth
The industry's average net interest margin, a profitability measure reflecting the difference between lending and deposit rates, stood at 4.31% in August, according to the Financial Services Authority (OJK). Margins began weakening after Bank Indonesia (BI) increased its policy rate by a total of 100 basis points in May and June.
Banks' lending continued to grow faster than their deposits. BI reported September loan growth of 13.26% from a year earlier, compared with 8.22% growth in third-party funds. The central bank projects credit growth of 8-12% for 2026.
Industry capital adequacy was 24.10% in August. Gross nonperforming loans accounted for 2.11% of loans, with the net ratio at 0.84%, according to BI.
Mandiri and BNI report lower margins
State-owned Mandiri reported a consolidated net interest margin of 4.43% for the third quarter, down from 4.56% in the second quarter and 4.89% a year earlier. More expensive time deposits pushed its funding costs up 30 basis points to 2.34%.
At fellow state-owned lender Bank Negara Indonesia (BNI), the quarterly margin decline also continued through September. Its October 27 corporate presentation put its bank-only margin for the first nine months of 2026 at 3.5%, compared with 3.8% in the same period of 2025.
BNI attributed that 30-basis-point decline mainly to lower loan yields rather than higher funding costs. Its year-to-date loan yield fell from 7.3% to 6.9%, while its cost of funds remained at 2.8%. The bank retained its full-year margin guidance of 3.3-3.5% and credit cost guidance of 1.0-1.2%.
The narrower margin did not prevent BNI from reporting record pre-provision operating profit of Rp27.5 trillion for the nine months, an increase of 11.6% from a year earlier. Net profit rose 6.6% to Rp16.1 trillion, and gross loans increased 22.2% to Rp992.5 trillion.
Private lender Bank Central Asia (BCA) differed from the two state-owned banks: its third-quarter margin edged up from the preceding quarter, though it remained lower than a year earlier.
Mandiri's management said a fourth-quarter margin improvement was possible but depended on funding conditions, according to UOB Kay Hian, as reported by Asian Banking & Finance. Management expected its 2026 cost of credit to reach the upper end of its earlier 60-80-basis-point guidance and set a range of 80-100 basis points for 2027.
Rate outlook and scheduled reserve cuts
Analysts cited by The Jakarta Post expect margin pressure to continue through year-end, with BI potentially keeping rates elevated to support the rupiah. On Thursday, October 29, the currency was trading not far above its record low against the US dollar.
At its October 20-21 meeting, BI left the BI-Rate at 5.75% and the Lending Facility rate at 6.50%, while increasing the Deposit Facility rate to 5.00%. The central bank recorded an exchange rate of Rp17,985 per US dollar on October 20, a point-to-point depreciation of 0.61% from the end of September.
Alongside that decision, BI announced planned reductions in rupiah reserve requirements. Conventional commercial banks' ratio will fall from 9% to 7% in two steps of 1 percentage point each, taking effect November 1 and December 1, 2026.
For sharia commercial banks and sharia business units, the requirement will decline from 7.5% to 5.5% through equivalent steps on the same dates. BI will also lower the Macroprudential Liquidity Incentive from 6% to 5% on December 1.