​​Financial system stability (FSS) was maintained despite heightened external pressures amid ongoing global uncertainty. The Financial System Stability Index, as an indicator of financial system resilience, remained in the Normal zone, supported by the resilience of the banking and Non-Bank Financial Industry (NBFI), as well as the sustained performance of corporations and households. Heightened external pressure had a limited impact on the financial sector, as reflected in the acceleration of intermediation and capital growth within both the banking industry and NBFI. In 2024, Bank Indonesia's policy mix remained focused on maintaining stability (pro-stability) through monetary policy, alongside accommodative macroprudential policies that provided room for financing to support sustainable economic growth. Bank Indonesia's policy mix was further implemented through payment system policies, money market deepening, as well as inclusive and green finance, with strengthened innovation, synergy, and coordination with government agencies, relevant authorities, and strategic partners.

Global financial market uncertainty and persistently high interest rates have influenced capital flows to developing countries, potentially affecting domestic financial system stability. The pace of disinflation in developed countries has tended to be slower with economic recovery expected to be subdued. Unresolved geopolitical tensions have further contributed to shifts in global economic growth patterns and diverging growth trajectories across nations. Highly uncertain global financial market conditions have resulted in more selective capital flows to developing countries, exerting additional pressure on exchange rates. The persistence of high interest rates, coupled with escalating exchange rate pressures, has the potential to affect vulnerabilities and risks in the financial system, as indicated in the risk assessment matrix. The continued strength of the domestic economy, however, has impacted the performance of the financial system positively.

Economic growth momentum continued amid stable inflation and exchange rates, driving the acceleration of banking intermediation. Domestic demand, particularly household consumption and investment, coupled with improved export performance, underpinned Indonesia's economic growth. Inflation remained within the target range, with both core inflation and administered prices under control, while volatile food inflation recorded a significant decline in most regions. Meanwhile, the exchange rate remained relatively stable. The positive macroeconomic outlook fostered optimism, supporting the performance of banking intermediation and preserving financial system stability. The acceleration of banking intermediation was supported by low credit risk, amid consolidation efforts carried out by banks following the suspension of the relaxation of the Covid-19 restructuring policy in March 2024.

Banking intermediation expanded, driven by deposit growth and ample liquidity. As of June 2024, bank loans grew by 12.36% (yoy), primarily supported by productive loans, namely investment loans and working capital loans, particularly in the corporate segment. Consumption loans also experienced robust growth, supported by housing loans (KPR) and multipurpose loans, though not as significantly as investment and working capital loans. Credit growth occurred across all KBMI, especially in large banks (KBMI 3 and 4) whose credit share reached 80% of the total. Meanwhile, the growth of KBMI 1 and 2 loans was mixed, reflecting differences in the business models of their respective bank groups: Regional Government Banks (BPD), Foreign Bank Branches (KCBA), and National Private Commercial Banks (BUSN). Bank risk appetite, as indicated by the Lending Requirement Index (LRI), remained relatively relaxed throughout all KBMI segments. The limited impact of the policy rate hike on lending and deposit rates further supported the acceleration of credit growth.

On the demand side, corporations in capital-intensive sectors drove the acceleration of productive credit growth. Credit expansion was prevalent across most economic sectors, especially in capital-intensive sectors. Corporate working capital loans were primarily fueled by export-oriented sectors, including the trade sub-sector, especially premium products. Meanwhile, corporate investment loans were contributed by domestically oriented sectors. Despite a positive bank credit appetite, the investment ratio remained comparatively lower than the credit ratio, indicating significant potential for increasing financing, especially in capital-intensive sectors, such as manufacturing, corporate services, transportation, mining, and electricity, gas, and water supply. In line with the banking industry, NBFI intermediation also showed positive developments, both from finance companies and fintech lending.

Deposit growth and bank liquidity remained sufficient to ensure the achievement of the credit growth target. As of June 2024, bank deposits had grown by 8.45% (yoy), and various liquidity adequacy ratios, including the LA/D, LCR, and NSFR ratios, remained well above the respective thresholds. Based on their liquidity tools, KBMI 1 and 2 banks maintained significantly higher liquidity levels than the industry average. KBMI 3 liquidity was adequate to support credit expansion needs, while KBMI 4 liquidity recovered to pre-pandemic levels, reflecting more aggressive credit growth. Banks diversified their funding sources beyond deposits, including relatively cheaper external debt, to support increased intermediation. Following the issuance of SRBI, banks optimized their liquid instrument portfolios to generate higher yields on idle funds without compromising their allocation for credit. Meanwhile, the purchase of SRBI by NBFI and households remained limited, having a minimal impact on the allocation of NBFI and individual deposits in banks.

Interest rate hikes and exchange rate pressures had a limited impact on the decline in solvency, supported by high corporate profitability across most economic sectors. Exchange rate depreciation negatively affected the net profit margins of import-oriented corporations. However, their strong profitability served as a buffer, enabling them to maintain debt repayment capacity. Moreover, interest rate hikes had a limited impact on declining solvency and corporate profitability in most economic sectors. Adequate liquidity and corporate strategies to reduce external debt contributed to this resilience. The construction sector, textile industry and real estate were the most significantly affected by the currency depreciation and interest rate hikes.

Household repayment capacity remained solid, contributing to the relative stability of banking industry and NBFI credit risk. Household income continued to rise, although recovery patterns varied across income groups. Middle- and upper-class households surpassed pre-pandemic income levels, while lower-class households are yet to fully recover, primarily due to the dominance of the informal workforce (59%), which had not returned to pre-pandemic conditions. The Debt Service Ratio (DSR) of households, particularly in the housing loan segment owned by upper-class households, remained relatively constrained, supporting their repayment capacity. LaR and NPL rates for households remained at low levels.

The relatively high capital ratio of banks and NBFI provided a strong buffer against increased credit and market risks, ensuring the sustainability of intermediation performance and profitability. Stress tests revealed that adequate capital and bank liquidity could absorb potential losses in the event of deteriorating macroeconomic conditions. The stress test conducted on NBFI also indicated good capital resilience. The interconnectedness between NBFI and banks was limited, as NBFI exposure to the banking industry remained very low. Overall, Indonesia's financial system exhibited resilience in the face of heightened global uncertainty. This was confirmed by the 2023 FSAP report, which acknowledged the resilience of the Indonesian banking system, while highlighting the need to strengthen the resilience of smaller banks, which represent a relatively small portion of the industry's total assets.

Sustainable economic growth continued to be fostered through economic inclusion policies and green finance. The distribution of MSME loans and MSME financing (Sharia) grew positively, although limited, primarily concentrated in the medium and small segments and the People's Business Loan (KUR) program. Banks adopted a selective lending approach to MSME loans, particularly in the micro business segment, as a consolidation effort to manage credit risk. Finance and fintech companies also exercised selectivity in their lending practices, resulting in a slowdown of financing growth, especially in the micro business segment. MSME loan disbursements were projected to rebound in the second half of 2024, in line with optimism regarding the improvement of MSME performance and financing opportunities available in the ultra-micro segment. Meanwhile, the distribution of green automotive loans and green housing loans accelerated significantly, outpacing industries with very low credit risk in both segments.

Strengthening FSS resilience by maintaining sustainable economic growth momentum, macroprudential policy innovations were directed to provide greater space for intermediation, while maintaining financial system resilience. Macroprudential policies remained accommodative to support intermediation in alignment with the financial cycle through the strengthened Macroprudential Liquidity Incentive Policy (KLM) and the optimization of banks' risk-based foreign loans through the Bank Foreign Funding Ratio (RPLN) policy. Effective KLM enhancements, implemented on June 1, 2024, expanded sectoral coverage and reallocated incentives, offering additional KLM incentives to banks whose credit growth in priority sectors exceeded specific thresholds. Meanwhile, RPLN policy, introduced on August 1, 2024, aimed to provide flexibility in managing banks' short-term foreign funds based on risk and prudential principles, taking into consideration the financial and economic cycles.

In addition to KLM policy, several other accommodative macroprudential policies remained in place. These included the Loan/ Financing to Value (LTV/FTV) ratio on property loans/financing and downpayment requirements on automotive loans/financing, the Countercyclical Capital Buffer (CCyB), the Macroprudential Intermediation Ratio (MIR), and the policy of increasing the transparency of the Prime Lending Rate (PLR). To bolster financial system resilience, Bank Indonesia maintained the Macroprudential Liquidity Buffer (MPLB) ratio, including the repo flexibility space provided within the MPLB. Policy synergy and coordination among BI, the Government, relevant authorities, and strategic partners were strengthened consistently, including national policy coordination through the Financial System Stability Committee (KSSK) and bilateral coordination with KSSK members to safeguard FSS.

The outlook for banking intermediation remains positive, supported by a resilient financial system and optimism regarding economic growth, ensuring the projected maintenance of financial system stability. Credit growth is forecast to remain within the target range of 10-12% at the end of 2024 and to accelerate further to 11-13% in 2025. Optimism regarding credit growth is fueled by expectations of a global interest rate cut in the second half of the year, which is projected to impact both the global and domestic economic outlook positively amidst stable inflation and exchange rates. Banks have significant financing capacity, low credit risk, and strong capital to support intermediation performance. Credit demand, particularly from corporations, has the potential to strengthen amid optimism regarding increased economic activity and more favorable interest rates. Meanwhile, demand for consumer credit is projected to rebound, in line with improvements in household repayment capacity. In terms of financial inclusion, MSME loans are projected to grow moderately with an improving trend, aligned with the enhancement of MSME performance and the continuation of the KUR program in the second half of 2024.

Bank Indonesia will maintain its accommodative macroprudential policies and provide room for financing, while strengthening synergy to support sustainable economic growth, and preserve financial system resilience. Macroprudential policies will remain accommodative to support the acceleration of credit and financing to businesses and households, while adhering to prudential principles. The macroprudential policy mix will continue to be implemented through various instruments aligned with optimal credit and financing targets, financial system resilience, as well as inclusive and green finance objectives. As an integral part of the macroprudential policy mix, Bank Indonesia will also conduct ongoing indirect surveillance and direct surveillance (inspections) on a thematic basis to ensure the effective implementation of macroprudential policies. Bank Indonesia will maintain coordination and synergy with financial sector authorities to enhance policy effectiveness, supporting both financial system stability and sustainable economic growth.