Indonesia banks face squeezed profit margins as rates rise

Bank Indonesia raised its benchmark rate by one percentage point to 5.75% in May 2026, increasing banks' cost of funds. As a result, the industry’s profit margin fell to 2.19% in April 2026, down from 2.21% in March. The decline was observed across major state‑owned banks, regional development banks and foreign‑branch banks, driven by operational costs rising faster than funding costs. Bank officials warned that higher loan rates could heighten credit risk, so banks are cautious about raising borrowing rates. BCA highlighted its strategy of expanding low‑cost CASA deposits, which now constitute about 85 % of total deposits, and reported a net interest margin of 5.3% in Q1 2026. Analysts expect margin pressure to continue through the end of 2026 unless cost efficiencies improve.