Financial system stability in 2023 was maintained despite persistent global uncertainty. This is evidenced by maintained financial system resilience, reflected in the Financial System Stability Index (FSSI) remaining in the normal zone throughout 2023 with increasing intermediation. Bank Indonesia consistently implemented a policy mix, i.e., macroeconomic stability maintained through monetary policy while stimulating economic growth through macroprudential policy, payment system, money market deepening, and an inclusive and green financial economy policy. Bank Indonesia's policy mix was further strengthened by innovation, synergy, and coordination with the government, relevant authorities, and other strategic partners.
Indonesia's financial system faced a global economic slowdown and growth divergence. Recovery optimism in early 2023 was gradually waning in line with the continuing scarring effect and increasing geopolitical-economic fragmentation. Growth divergences between countries also marked global economic performance in 2023. The United States (US) and India's economies remained strong, while China experienced slow down. Inflation declined in the advanced economies but still above its target. The high US Fed Fund Rate (FFR) in the 5.25-5.50% range is predicted to remain high for longer until the first half of 2024. The strong US dollar pressure caused all world currencies to depreciate. In response, Bank Indonesia consistently takes stabilization measures so that the rupiah appreciates better than the currencies of several regional countries. On the other hand, the domestic economy in 2023 remained strong and resilient amidst challenges due to the propagation impact of the economic slowdown and increasing pressure on global inflation with growth of 5.05%, primarily driven by accelerated government spending at the end of the year and accelerated completion of several National Strategic Projects (PSN).
Bank intermediation remained solid in 2023, supported by maintained risk appetite and adequate liquidity. Bank loans at the end of 2023 grew by 10.38% (yoy), moderating from 11.35% (yoy) in 2022, but relatively improved compared to 7.76% (yoy) in the previous semester. The increase in bank loan growth was supported by productive loans, both Working Capital Loans and Investment Loans, primarily in the corporate segment. Improved intermediation performance occurred in most economic sectors, primarily the Trade, Transportation, and Electricity, Gas and Water Supply sectors. On the demand side, positive corporate sales growth boosted demand for corporate loans, especially the Working Capital Loans. The increase in bank loan was also supported by increasing demand for consumer loans, especially housing loans. On the supply side, intermediation improvements were supported by risk appetite and adequate liquidity in the banking industry, as reflected by a relatively stable Lending Standard Index (LSI) and a loose Lending Requirement Index (LRI). Meanwhile, the increase in the policy rate in the second semester of 2023 had a limited impact on the increase in rupiah lending rates, thus contributing to maintained credit growth in 2023. In line with banking, NBFI intermediation also showed positive developments, especially in finance companies and PT Pegadaian. NBFI intermediation was also driven by the rise of financing innovations based on digital platform ecosystems such as e-commerce distributed by finance companies and financial technology (fintech).
