Indonesia's financial sector urged to shift from expansion to resilience

The country’s 5% growth is no longer a green light for risk-taking, an economist warns.

Indonesia’s banks and insurers are entering a more volatile operating environment despite economic resilience, according to Joshua Pardede, chief economist of Permata Bank, who warned financial institutions against treating 5% growth as a signal for aggressive expansion.

Speaking at the Asian Banking & Finance and Insurance Asia Summit in Indonesia, Pardede said the key challenge for financial firms in 2026 is no longer balance sheet strength but whether institutions can maintain profitability and customer trust amid rising external shocks.

“Indonesia’s economy is still growing, but the growth is no longer a green light for risk-taking," Pardede said.

The remarks come as Indonesia faces mounting pressure from higher oil prices, rupiah weakness, elevated global interest rates, and geopolitical tensions, particularly in the Middle East.

Pardede said the combination is narrowing policy flexibility for both regulators and financial institutions.

He warned that oil prices above $75 per barrel and a rupiah exchange rate near 16,750 to the US dollar would effectively eliminate room for further monetary easing by the Bank Indonesia.

A move toward $80 oil and a rupiah near 17,000 could force policymakers into a more hawkish stance.

“Our base case must be scenario-led, not point-forecast-led,” he said, urging banks and insurers to stress test liquidity, debtor repayment capacity, bond portfolios, and insurance claims under higher oil-price assumptions.

Pardede said Indonesia’s first-quarter gross domestic product (GDP) growth of 5.61% year-on-year (YoY) was supported largely by domestic consumption, government spending, and investment related to priority programmes.

He forecast full-year growth of 5.1% to 5.2%, below the government’s target.

“Banks and insurers cannot only look at aggregate GDP,” Pardede said. “They need to understand which sectors benefit from domestic demand and which sectors are exposed to global volatility.”

The warning comes despite relatively healthy banking indicators. Credit growth stood at 9.5% YoY in March, whilst third-party funds grew 13.5%.

The banking sector’s capital adequacy ratio remained high at 25%, and gross non-performing loans were contained at 2.14%.

For insurers, the challenge is different. The sector remains well-capitalised, with risk-based capital ratios comfortably above regulatory minimums, but premium growth remains subdued.

Life insurance premiums declined slightly, whilst general insurance growth remained modest.

Pardede said this creates an opening for insurers to expand into health, retirement, small and medium-sized enterprises (SMEs), and climate-risk protection products as Indonesia’s financial system matures.

He emphasised that the next phase of Indonesia’s financial-sector development would depend less on expansion and more on what he called “trusted resilience”—combining prudent lending, tighter underwriting standards, governance, and customer confidence.