How the Middle East Conflict Could Increase Non-Performing Loans

The Executive Head of Banking Supervision at the Financial Services Authority (OJK), Dian Ediana Rae, explained the risks of the impact of the Middle East conflict on the financial sector, particularly banking. According to Dian, if the conflict lasts for a sufficiently long time, banks will face the risk of an increase in non-performing loans.

Dian explained that from the credit perspective, rising energy prices and inflationary pressures could increase production and distribution costs in the business sector. This situation could reduce company profitability, debtors’ ability to pay, and public purchasing power.

“This will certainly have the potential to increase the risk of rising problematic loans, Non-Performing Loans, and the need for provisioning or CKPN (allowance for impairment losses),” said Dian during an online press conference on Monday, 6 April 2026.

Dian stated that this risk could increase in certain sectors sensitive to energy prices and logistics costs, such as transportation and manufacturing. In addition, she said that pressure on public purchasing power could also increase credit risk in the SME and consumer segments, which are more sensitive to changes in economic conditions.

Nevertheless, Dian claimed that the resilience of Indonesian banking is relatively strong to face various risks arising from global dynamics. As of February 2026, the capital adequacy ratio or CAR remained high at 25.83%. Meanwhile, the NPL ratio was still below 3%, at 2.17%.

The ratio of Liquid Assets to Third-Party Funds (LA/TPF) and the ratio of Liquid Assets to Non-Core Deposits (LA/NCD) in February were recorded at 121.29% and 27.4%, respectively. Meanwhile, the Liquidity Coverage Ratio (LCR) was at 195.64%. “This is still well above the threshold and sufficient to maintain short-term banking liquidity going forward,” said Dian.