Jakarta. Indonesia’s financial regulator has warned banks to prepare for a potential deterioration in loan quality as weakening consumer purchasing power, rising layoffs, and inflation risks threaten borrowers amid persistent global and domestic economic uncertainty.

The Financial Services Authority (OJK) said Indonesia’s banking sector remains fundamentally healthy, supported by strong capital buffers and robust credit growth, but urged lenders to remain vigilant against emerging risks affecting households and small businesses.

“The banking industry needs to remain alert to weakening purchasing power, the possibility of further layoffs, and future inflation risks stemming from global and domestic economic volatility,” Dian Ediana Rae, OJK’s chief executive for banking supervision, said on Wednesday.

Indonesia’s banking industry recorded a non-performing loan (NPL) ratio of 2.17%, well below regulatory thresholds, while the loan-at-risk (LaR) ratio stood at 8.82%.

Despite the cautionary note, banks continue to maintain strong capital positions. The industry’s capital adequacy ratio (CAR) reached 23.97% as of April, significantly above minimum regulatory requirements and providing lenders with substantial buffers against potential credit losses.

Bank lending has also remained resilient. Outstanding credit expanded 11.51% year-on-year in May, accelerating from 9.98% growth in April. Bank Indonesia expects overall lending growth in 2026 to remain within its target range of 8% to 12%.

The warning comes as Indonesia’s labor market and household finances face mounting pressures. The Manpower Ministry reported that 23,470 workers lost their jobs between January and May this year, raising concerns about household incomes and debt repayment capacity.

According to OJK, a combination of softer purchasing power and rising unemployment risks could increase credit risks, particularly among micro, small, and medium-sized enterprises (MSMEs) and consumer lending segments, which are generally more sensitive to economic conditions.

At the same time, household spending — the backbone of Southeast Asia’s largest economy — has remained relatively strong. Household consumption grew 5.52% year-on-year in the first quarter and accounted for roughly half of Indonesia’s gross domestic product, helping drive overall economic growth of 5.61%.

Still, OJK warned that prolonged economic uncertainty could prompt banks to become more selective in extending credit, potentially affecting lending growth in the coming quarters.

Dian said developments in both the domestic and global economy would continue to influence the performance of the banking industry.

To assess potential vulnerabilities, OJK regularly conducts stress tests covering various economic, financial market, and political scenarios. Banks are also required to perform their own internal stress tests to evaluate their resilience under adverse conditions.

“These stress tests allow OJK and banks to identify risks at an early stage and prepare appropriate and measured mitigation strategies, including anticipating their impact on bank capital and liquidity,” Dian said.

The latest stress tests conducted by both the regulator and the banking industry indicate that Indonesia’s banks maintain adequate capital levels to withstand significant changes in macroeconomic conditions.

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