KNEKS Reveals Roadmap to Promote New Large Islamic Banks

Jakarta — The National Committee for Sharia Economics and Finance (KNEKS) has revealed the most effective pathway to expand Indonesia’s Islamic banking market share, which currently remains modest at 7.5%.

Sutan Emir Hidayat, Director of Sharia Ecosystem Infrastructure at KNEKS, stated that each bank must appoint a dedicated director specifically overseeing its Sharia business unit (UUS). This director would then bear responsibility for developing the UUS so that it can undergo a spin-off to become a full Islamic Commercial Bank (BUS).

“To execute a corporate action like a spin-off, there must be a dedicated director for Sharia operations. Why? If someone becomes a dedicated Sharia director, they have KPIs [key performance indicators]. And they must grow it, must expand it. And they have their own unit with complete resources. This way they can reach a certain scale,” Emir explained during a media briefing at Bank Jago’s headquarters on Monday, 9 March 2026.

Emir suggested this approach is preferable to mandatory spin-off requirements, which banks with UUS units tend to avoid.

“Rather than the current situation where some banks, fearing mandatory spin-offs, hold back and don’t want to grow. They keep it contained. Eventually when it reaches Rp50 trillion they have to spin off. Stop, stop, stop,” Emir said.

He noted that the UUS spin-off obligation has been a lengthy discourse. Previously, legislation required UUS spin-offs after 15 years of operation, which he said lacked strong academic foundations.

Currently, spin-off requirements are governed by OJK Regulation (POJK) No. 12/2023 on Sharia Business Units. It mandates that UUS with assets reaching 50% of the parent company’s total assets and/or possessing minimum assets of Rp50 trillion must spin off. This regulation derives from the Law on Financial Sector Development and Strengthening (UU P2SK).

Emir stated that previous KNEKS studies found that implementing spin-offs would merely create small banks. Therefore, consolidation must be pursued to enable growth.

“And we’ve already seen that size really matters,” Emir said.

He referenced the establishment of PT Bank Syariah Indonesia (Persero) Tbk. (BSI) through a merger of three UUS units belonging to three state-owned banks under the State-Owned Banks Association (Himbara). Emir acknowledged that BSI’s formation as a Tier III CBMI bank created greater business opportunities and faster growth.

Therefore, Emir believes corporate actions involving spin-offs should only be executed by UUS units that are ready.