Indonesian economist warns state banks are becoming the budget's lending arm — Centre for Strategic and International Studies (CSIS Indonesia)

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Institution: Centre for Strategic and International Studies (CSIS Indonesia)
Author: Dwiwulan
Country · language: Indonesia · Indonesian
Affiliation: Independent think-tank

Summary

In a commentary dated 5 November, CSIS Indonesia economics researcher Dwiwulan argues that over the Prabowo government's two years, the state banks known as Himbara have moved their lending decisions away from commercial criteria. In August 2026 Himbara lending grew 16.41% year on year, against 13.65% for the banking sector as a whole. That growth coincides with the financing of government programmes. The list includes 27.74 trillion rupiah for the FLPP housing liquidity fund, more than 1.21 trillion rupiah in loans for school-meal kitchens and up to 240 trillion rupiah of financing for the KDKMP village cooperatives.

The author says the risk shows up first in margins. CreditSights estimates the net interest margin on cooperative lending at about 1.4%, against 4.4% for Bank Mandiri and 3.6% for BNI in the second quarter. According to the author, neither bank has yet set aside provisions for these loans. The share of SME lending fell from about 19.7% in September 2024 to 16.7% in June 2026. Over the same period SME credit grew by about 1.5% while total lending rose by close to 20%. In the author's view, repayment of these loans depends not on borrowers' cash flow but on fiscal space, which has narrowed over the past two years.

Citing a report by Tempo, the commentary says Bank Mandiri extended a loan of about 40 trillion rupiah with a 75-month tenor to a mining group. Part of the collateral consists of shares in two companies whose free float is below 9%. On the author's calculation, assuming 26.1 trillion rupiah has been drawn, collateral coverage fell from 1.54 times on 30 September to 1.24 times on 23 October. If the loan turns bad, the bank's non-performing loan ratio could rise by more than 150 basis points.

Capital is also getting more expensive. In April 2026 BNI sold 700 million dollars of perpetual bonds at a 7.15% coupon; a similar issue in 2021 carried 4.30%. Five months later Bank Mandiri followed with 750 million dollars at 7.35%. Bank Mandiri alone holds about 17% of national credit, and each Himbara bank has lent more than 50 trillion rupiah to Agrinas for the cooperative programme. The author argues that if the programme falters, several large banks would come under pressure at the same time.

Blind spot

The commentary reads the risk in one direction only; it does not measure the chance that state backing lowers the banks' funding costs, or the programmes' contribution to growth. The collateral calculation rests on Tempo's report and an assumed drawdown of 26.1 trillion rupiah; the actual loan amount and other collateral have not been verified. It also passes over the effect of rupiah weakness on dollar coupons without putting a number on it.

Talay assessment

Bottom line

This reading from Indonesia's leading independent think-tank sees state banks as an off-balance-sheet arm of the budget. The 1.4% margin on cooperative lending and unprovisioned risk shift the fiscal burden onto bank capital. Aggregate credit quality looks sound today, but risk is building in margins, concentration and costlier capital rather than in the NPL ratio. The most likely path is that the programmes continue and capital needs are met through more expensive dollar borrowing.

Likely effects

Indonesian state banksNegative1–6 months
As low-margin programme lending grows, the banks' capital needs rise; dollar coupons above 7% raise the cost of meeting them.
SME financeNegative1–6 months
Small businesses, whose share of lending has fallen from 19.7% to 16.7%, find financing harder to obtain while they remain outside the programmes.
Sovereign riskNegative6 months+
Because repayment of programme loans depends on the budget, shrinking fiscal space turns bank risk and treasury risk into a single, mutually reinforcing risk.
Emerging market bankingUncertain1–6 months
Using state banks as quasi-fiscal tools is a familiar pattern in Türkiye too; the Indonesian case shows margins and capital costs deteriorating before the NPL ratio does.

Possibilities, ranked

1
Programmes continue, capital gets costlier55%
The government keeps the cooperative and housing programmes running; state banks top up capital with new dollar perpetual bonds carrying coupons above 7%.
Watch: New additional tier 1 issues by Himbara banks and OJK's monthly credit growth data
2
The regulator sets limits30%
OJK clarifies risk-sharing and provisioning rules for mandated lending, and banks begin setting aside provisions against cooperative loans.
Watch: Provisions for KDKMP loans in banks' quarterly reports and implementing guidance for POJK 17/2026
3
Collateral shock15%
The decline in pledged shares continues, a large corporate loan turns bad and the NPL ratio jumps by more than 150 basis points.
Watch: Bank Mandiri's fourth-quarter NPL ratio and announcements of collateral top-ups

Probabilities are calibrated judgement based on the sources, not measurement, and are revised as new information arrives. Not investment advice.

Original publication: csis.or.id · 5 November 2026

This page summarises the institution's view and does not reflect the view of Talay Insight. No direct quotation is used.