Fitch flags risks from Indonesia’s reliance on state banks to fund government programmes

[JAKARTA] Ratings agency Fitch Ratings has warned that Indonesia’s growing reliance on state-owned banks to support government programmes could pose longer-term risks to asset quality and the country’s policy framework, even though the banking sector currently remains resilient.

George Xu, director of Asia-Pacific sovereign ratings at Fitch Ratings, said that Indonesia’s banking system still shows strong underlying credit fundamentals, but that the increasing policy role assigned to state lenders warrants closer scrutiny.

“We do not see significant asset-quality risks or major profitability challenges at the moment. The system remains quite resilient,” Xu noted at the Fitch on Indonesia 2026 event in Jakarta, on Thursday (Apr 23).

“However, our concern is more about the role of state-owned banks as a vehicle to support government initiatives that may not necessarily be purely profit-driven. This could potentially create asset-quality challenges over time,” he said.

Fitch Ratings on Monday revised the outlook on four Indonesian state-owned banks – Bank Mandiri, Bank Rakyat Indonesia, Bank Negara Indonesia and Bank Tabungan Negara – from stable to negative, while affirming their BBB ratings.

The negative outlook follows Fitch’s decision in March to revise the outlook on Indonesia’s sovereign rating from stable to negative.

Indonesia’s government is targeting economic growth of about 5.6 per cent this year despite a less-favourable global environment.

To help achieve that goal, the authorities have encouraged state-owned banks to expand subsidised lending to support economic activity.

At the end of last year, Finance Minister Purbaya Yudhi Sadewa transferred about 200 trillion rupiah of government funds previously parked at Bank Indonesia to five state-owned banks, including the four that were downgraded, in an effort to channel the liquidity back into the economy through increased lending.

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Xu said that such policies raise questions about both the efficiency of lending and the potential impact on banks’ balance sheets over time.

“There are two questions here,” he noted. “First, whether such lending will be efficient. Second, whether it could lead to potential asset-quality challenges in the longer run.”

The shift could also signal a gradual change in Indonesia’s policy mix, as the central government exerts stronger influence over the lending decisions of state-owned banks.

Such risks were among the factors behind Fitch’s recent decision to revise the outlook on Indonesia’s sovereign rating.

Despite these concerns, Xu stressed that Indonesia’s macroeconomic fundamentals remain relatively stable, and the banking system continues to be strong.

He added that the ratings agency will closely monitor how the government balances its growth ambitions with fiscal discipline and financial-sector stability, particularly as state-owned banks and new institutions such as sovereign wealth fund Danantara take on a larger role in financing development programmes.