• id

Banking Sector

In 1997-1998, Indonesia faced one of the most costly financial crises in recent history, as nearly its entire banking sector collapsed.

 This cost the government a staggering 50 percent of GDP – one of the highest fiscal costs paid so far by any country in history.

  • The Indonesian banking sector is the most profitable among ASEAN nations.
  • Indonesian Islamic banks make up 4-5 percent of the banking market share.
  • 99 percent foreign ownership is permitted in the finance sector in Indonesia
  • In 2013, home mortgage loan growth was 42.8% (type >70 sq. meter).
  • Corruption in the banking sector accounted for the largest state losses in 2007.

assets composition Indonesia


The crisis ended a nearly 25-year span of continuous economic growth averaging more than 7 percent annually in real terms. It means this ended crisis had helped lift millions of Indonesians out of poverty. The crisis exposed weaknesses in governance regulation and corruption. And politically affecting the connection business relationships that led to the collapse of the Indonesian banking and financial sector. In the 14 years since, however, Indonesia’s banking sector has made a remarkable recovery.

The sector’s performance has been strong, with high profitability and continued growth. Furthermore, the banking sector has achieved markedly increased stability and become more resilient to crises. The banking system went through a huge consolidation, from 236 to 128 banks. An independent central bank was put in place and regulation and supervision were substantially improved. All banks taken over during the crisis were sold back to the private sector.

More recently, the global financial crisis in 2008 tested the system. And Indonesia came out relatively unscathed with only a marginal and short-term impact on the banking sector. Despite these achievements in the Indonesian banking and financial sector, all reforms are not yet complete and the biggest challenge remains financial inclusion.

inflation rate Indonesia


Indonesian Banking Sector

Currently, the Indonesian banking sector is the most profitable among ASEAN nations. According to Bank Indonesia’s 2012 Annual Report, net profits at commercial banks rose by 23.7% to US$10.57 billion. In 2013, profits of the top three commercial banks in Indonesia accounted for US$5.20 billionBank Rakyat Indonesia posted the highest 2013 profit among Indonesian banks (US$2.06 billion), followed by Bank Mandiri (US$1.76 billion) and BCA (US$1.37 billion). At least two factors account for high profits in the Indonesian banking industry: First, net interest margin (NIM) (5.46 percent in August 2013) in Indonesia is the highest worldwide. Second, huge potential exists for further growth of the Indonesian banking industry because banking penetration in Indonesia stands at approximately 30 percent only of its 250 million populations.

Indonesia is also an emerging market for shari’a banking, with average growth of 38-40 percent in the past five years. The country’s Islamic banks exist in three forms: Islamic commercial banks, Islamic business units and Islamic rural banks. Islamic banking operations are based on the principle of partnership and mutual benefit, providing an alternative banking system with benefits both for the public and the bank.

This system give priority to fairness in transactions and ethical investment.  The fairness comes by underlining the values of togetherness and partnership in production, and by avoiding any speculative activity. By providing products and banking services supported by a variety of financial strategies, Islamic banking will be a credible alternative that can benefit all Indonesians. Currently Indonesia has 12 shari’a-compliant commercial banks. 163 Islamic rural banks, as well as 22 shari’a business units (which known as ‘Islamic windows’) operated by non-Islamic banks. Indonesian Islamic banks make up 4-5 percent of the banking market with total assets accounting for US$24 billion at the end of 2014.


Indonesian Government Banking System

In response to the sharp decline in oil prices in 1986, and again in 1998, the Indonesian government opened up the banking system to foreign investors allowing up to 99 percent ownership. This was done to investors to help recapitalize the collapsing banking sector. After that, foreign players entered the market with 10 majority foreign-owned banks including HSBC, ANZ and Rabobank.  Also, 28 foreign joint-venture banks then took significant stake in the banking sector during 2002 to 2005. In fact, foreign banks were the most profitable type of bank in 2003-2012, with the return on assets (ROA) ranging form slightly below 3 percent to over 7 percent in Indonesia.

According to the Central Bank of Indonesia, in 2013, average growth in home mortgage loans per province was 42.8 percent. By February 2013, DKI Jakarta Province growth reached 31 percent, followed by Banten (66 percent), Bali (64 percent) and South Sumatra (70 percent). Other provinces such as West Java, East Java and North Sumatra reached approximately 42 percent and East Kalimantan had 44 percent. The state-owned Bank Tabungan Negara (BTN) has the largest share of the home mortgage loan market. Total property lending (housing, apartments, and shops) in the first quarter of 2013 reached US$24.701 billion.

Risk of Management Tools

Meanwhile, access to risk management tools such as pensions and insurance, particularly for the poor, is extremely limited. Findings from recent surveys underline the importance of expanding the ability of financial institutions. This financial institutions offer savings and credit services to a much wider range of customers. Failure to provide more households and small and medium enterprises (SMEs) with financial services can only act as a brake on development. Therefore, sound financial sector policies that encourage competition and provide the right incentives.  Financial sectors policies can affecting the institutions and individuals to overcome barriers to access are central to growth, poverty reduction and a more equitable distribution of resources and capacities in Indonesia.


The Challenge of Banking Sector

According to Indonesia Corruption Watch, corruption in the banking sector accounted for the largest state losses in 2007 (US$0.226 billion). During the year, there were four large corruption cases, including the takeover of the assets of PT Kiani Kertas and non-performing loans in PT OSO Bali Shining, Commercial Banking Center (CBC) Bank Mandiri, PT Lativi Media Works. Other famous cases are the Century Bank bailout (US$677.4 million) in 2008. And Bank Indonesia Liquidity Assistance (BLBI) during the financial crisis in 1998-1999. (The fund was 100 times bigger than the Century bailout). Today, these cases are still working their way through in the legal process.

In 2014, corruption in general was still a problem. The number of corruption cases in Indonesia rose 12% in 2014, offering a possible sign that antigraft efforts are growing stronger even as corruption remains a pervasive problem, according to Indonesia Corruption Watch.

You can read more…

We can help you register your Banking and Financial company in Indonesia

Opening a Bank account in Indonesia

Feel free to contact us and get a free quotation for entering the Banking and Financial sector in Indonesia.

Fill out the form below and we’ll reply you with a quote and overview customized for your industry.

Full name *

Email *

Phone Number *

Country *

Business Field

Thank you for your interest about our service. To be able provide you complete comprehensive respond on your inquiry, please provide us more details about your inquiry and phone number to make easy our future communication.

Message *