The Indonesian Financial Services Authority (OJK) released its Q2-2024 Banking Surveillance Report, shedding light on the economic interplay between global conditions and Indonesia’s banking performance. Amid global economic stagnation and rising uncertainties, Indonesian banks demonstrated resilience, supported by steady credit growth and liquidity levels.

Globally, financial markets were influenced by prolonged inflationary trends, geopolitical tensions in the Middle East and Ukraine, and the Federal Reserve’s (Fed) policy on maintaining a high Fed Funds Rate (FFR) through mid-2024. This policy shifted in September, with the Fed reducing the FFR by 50 basis points, signaling a potential easing cycle. Such adjustments carried implications for emerging markets, including Indonesia, as they navigated volatile capital flows.

Domestically, Indonesia’s economy expanded at 5.05% year-on-year (yoy) in Q2-2024, slightly lower than 5.11% in Q1-2024. This growth was driven by robust export performance, offsetting slower consumption and government spending. Export contributions reached 22.77% of GDP, buoyed by demand for key commodities like nickel and electrical equipment. Meanwhile, domestic consumption growth decelerated to 5.05% (yoy) from 5.30% in Q2-2023, partly due to reduced economic stimuli post-election and Ramadan.

In the banking sector, credit growth for commercial banks rose significantly to 12.36% (yoy), compared to 7.76% in the previous year, reflecting heightened corporate demand and improved repayment capacities. Third-party funds (DPK) also saw a robust growth of 8.45% (yoy). These metrics underscore the sector’s liquidity strength, as evidenced by ratios such as AL/NCD at 112.33% and AL/DPK at 25.37%, far exceeding regulatory thresholds.

Capital adequacy remained sound, with a consolidated capital adequacy ratio (CAR) of 26.09%. Although slightly lower than the previous year, this decrease was aligned with credit expansion, which led to a 9.91% rise in risk-weighted assets. Non-performing loan (NPL) ratios showed stability, with gross NPL at 2.26% and net NPL at 0.78%. Similar trends were observed in rural banks (BPR) and Islamic rural banks (BPRS), where capital adequacy remained above 23%.

Challenges ahead include heightened liquidity and market risks due to persistent global uncertainties, including China’s economic deceleration and escalated geopolitical conflicts. OJK emphasized the need for banks to perform regular stress testing and bolster their capital reserves to withstand potential shocks. Regulatory enhancements during the period, such as the updated provisions for BPR and BPRS, aim to ensure systemic stability.

Additionally, OJK’s active participation in international forums like the Basel Committee and ASEAN Banking Integration Framework underscores its commitment to aligning Indonesia's financial systems with global standards.