Financial Services Authority: Banking Sector Remains Solid Amid US-Iran Conflict and 2026 Inflation
The Executive Head of Banking Supervision at the Financial Services Authority (OJK), Dian Ediana Rae, reported that the OJK’s Banking Business Orientation Survey (SBPO) for the first quarter of 2026 indicates that banking sector performance will remain solid with managed risks. The survey, conducted in January 2026, involved 93 responding banks whose combined assets represent 94.17 per cent of total general banking assets based on December 2025 data.
Confidence in solid banking performance is reflected in the Banking Business Orientation Index (IBP) for the first quarter of 2026, which stood at 56 (optimistic zone). This optimism is driven by projections of improved banking sector performance and confidence that banks will be capable of managing risks amid expectations of increased inflation and currency weakening.
Predictions of weakening currency values and rising inflation rates pulled down the Macroeconomic Conditions Expectations Index (IKM) for the first quarter of 2026, moving it into the pessimistic zone (IKM=45). Expected inflation increases are driven by seasonal factors such as Ramadan, Eid al-Fitr celebrations and Chinese New Year festivities, which typically raise prices for goods and services. Additionally, a low base effect from the previous year contributes to anticipated inflation, as electricity tariff discounts that were applied last year will not be repeated in the first quarter of 2026.
The currency is expected to weaken as global geopolitical tensions remain elevated. However, Indonesian economic growth is projected to accelerate, driven by anticipated increases in consumer spending in the first quarter of 2026.
The majority of survey respondents believe that banking sector risks in the first quarter of 2026 can still be managed and controlled. This is evident from the Risk Perception Index (IPR) of 57, which falls within the optimistic zone, reflecting confidence that credit quality remains sound and Net Foreign Exchange Position (PDN) remains at low levels, with foreign exchange assets and claims exceeding foreign exchange liabilities (long position).
Liquidity risk is also expected to remain manageable, supported by expectations of growing banking liquidity tools and third-party funds (DPK). Given anticipated DPK growth exceeding projected credit distribution growth, net cash flow in the first quarter of 2026 is expected to increase. Additionally, cash inflow is expected to rise with the influx of regional government funds beginning in the first quarter of 2026.
Expectations for banking sector performance in the first quarter of 2026 also remain optimistic, with the Banking Performance Expectations Index (IEK) at 67. Growth optimism for the first quarter of 2026 is driven by expectations that credit will continue to grow as credit demand increases, supported by banks’ efforts to expand credit through available pipelines. The processing industry, the economic sector dominating credit distribution in January 2026, grew 6.60 per cent year-on-year and is projected to remain a key driver of future credit growth. Regarding fund-raising, respondents expect DPK to grow in the first quarter of 2026 as banks seek funding sources to support credit growth and maintain liquidity.
Dian stated: “The survey results also demonstrate that respondents have significant concern about the prolonged global situation, which may worsen, and the implications for Indonesian economic performance. Although various banking indicators are currently in a resilient position, the banking sector still greatly requires a vibrant business ecosystem to grow well.”
In this SBPO period, the OJK also gathered information from respondents regarding global and Indonesian economic outlooks for 2026 and growth in micro, small and medium enterprise (MSME) lending. Global economic growth is expected to remain moderate, driven by high levels of uncertainty and global geopolitical tensions.
Developments in recent weeks show increasing geopolitical tensions following the escalation of the US-Iran conflict after the United States and Israel launched attacks on Tehran. The real impact of the conflict has already been felt in Asian stock markets, which plummeted due to panic-selling amid concerns that the conflict would trigger inflation and damage the global economy. Broader impacts on global and domestic economies could occur if the conflict persists over an extended period.
Dian stated firmly: “Learning from various crises we have faced, difficult situations such as this must be used to strengthen reforms across all economic sectors. Various economic policies must be formulated in a cohesive and coherent manner to drive increasingly good and sustainable performance, thereby promoting a more dynamic and competitive Indonesian economy.”
Meanwhile, Indonesia’s economy in 2026 is projected to maintain solid growth, driven by fiscal stimulus and accommodative monetary policy. Domestic economic growth continues to be supported by household consumption and manufacturing, which remain the primary drivers of Indonesian economic growth. Additionally, most responding banks are optimistic that MSME credit growth in the first quarter of 2026 will increase as a proportion of total credit.
The OJK conducts the SBPO quarterly to obtain insights from the banking industry about economic direction, perceptions of banking risks, and the direction and trends of banking business in the following quarter. The SBPO produces the Banking Business Orientation Index (IBP), a composite index indicating perceptions on a scale of 1-100, where an index above 50 indicates optimistic perceptions, an index of 50 indicates stable perceptions, and an index below 50 indicates pessimistic perceptions.