Indonesian Banking Sector's Strategic Adaptation to Rising USD Deposit Rates

The Indonesian banking sector is navigating a complex interplay of rising USD deposit rates, foreign currency exposure, and domestic liquidity constraints in 2025. As global trade tensions and volatile commodity prices persist, banks are recalibrating their strategies to balance growth ambitions with risk mitigation. This analysis explores how institutions are leveraging policy frameworks, technological innovation, and selective lending to position themselves for resilience and profitability.

Foreign Currency Exposure: Hedging and Diversification

Rising USD deposit rates have intensified pressure on Indonesian banks to manage foreign currency exposure. According to a report by Business Indonesia, the Indonesian Financial Services Authority (OJK) emphasizes the need for banks to prioritize liquidity management amid tightening conditionsIndonesia’s Banking: Cautiously Optimistic^[1]. Bank Indonesia (BI) has responded by adjusting regulatory parameters, such as raising the Bank Foreign Funding Ratio (RPLN) to 35% of bank capital in June 2025, enabling institutions to access more foreign funding while maintaining prudential standardsMonetary Policy Review May 2025 - Bank Indonesia^[2].

Case Study: Bank Mandiri's Digital FX Expansion
Bank Mandiri has emerged as a leader in foreign exchange (FX) services, expanding its digital platforms to offer real-time hedging solutions. Through Kopra by Mandiri and Livin' by Mandiri, the bank provides Cross Currency Swaps (CCS), FX Forwards, and Options to corporate and SME clientsAlpha Southeast Asia Ganjar Bank Mandiri 3 Penghargaan untuk solusi FX^[3]. In 2025, it added seven new currencies to its portfolio, enabling transactions in 17 currencies across 180 countriesBank Mandiri Increases Foreign Exchange Range To 17^[4]. This digital-first approach not only mitigates FX risk but also aligns with BI's goal of stabilizing the rupiah.

Institutional Hedging Strategies
Banks are increasingly adopting forward contracts and currency swaps to lock in exchange rates and reduce volatility. A Bloomberg analysis notes that BI's net short forward position reached $19.6 billion in 2025, reflecting active intervention to defend the rupiahRise of Dollar Forwards Builds Risk for Asian Central Banks^[5]. For instance, Bank Central Asia (BCA) has leveraged its strong liquidity position—with an LDR of 80% in April 2025—to manage FX risks without overexposing itself to high-cost fundingBank Central Asia prioritises margin stabilisation over aggressive loan growth^[6].

Loan Growth: Prudence and Selectivity

Despite a high LDR of 87.5% as of October 2024, Indonesian banks are cautiously optimistic about loan growth. The OJK projects credit expansion between 9–11% for 2025, supported by government stimulus and lower benchmark ratesIndonesia’s Banking: Cautiously Optimistic^[1]. However, rising funding costs—up 100 basis points since August 2022—have forced banks to prioritize quality over quantity.

Sectoral Focus and Digital Lending
Banks are channeling credit into high-margin industries such as mining and mineral processing, where investment loans grew 12.3% YoY by year-end 2024Indonesia’s Banking: Cautiously Optimistic^[1]. Digital banking adoption is also accelerating, with institutions like Bank Mandiri and BCA expanding automation to reduce operational costs. BCA's cost-to-income ratio (CIR) of 28.5% in Q1 2025 underscores the efficiency gains from self-assisted machines and in-house data centersBank Central Asia prioritises margin stabilisation over aggressive loan growth^[6].

Regulatory Tailwinds
BI's January 2025 rate cut to 5.75% has eased borrowing costs, but banks remain cautious. UOB Kay Hian analysts note that high funding costs and a tight LDR environment will moderate competition in 2025Indonesian banks to see less intense loan competition in 2025^[7]. Smaller banks, particularly those serving the MSME sector, face higher non-performing loan (NPL) risks, while larger institutions like Bank Mandiri and BCA are better positioned to capitalize on disciplined lending.

Investment Outlook: Balancing Risks and Opportunities

The Indonesian banking sector's strategic positioning offers both challenges and opportunities for investors. While rising USD rates and global uncertainties pose liquidity risks, regulatory support and digital transformation create long-term value. Key metrics to monitor include:
- LDR Trends: A sustained LDR above 85% could signal liquidity stress, but BI's liquidity buffers and OJK's financial inclusion initiatives provide safeguardsIndonesia’s Banking: Cautiously Optimistic^[1].
- FX Hedging Effectiveness: Banks with diversified hedging tools (e.g., Mandiri's digital FX platforms) are better insulated against rupiah volatility.
- Loan Quality: Selective lending in high-margin sectors, as seen with BCA's 6–8% growth target for 2025, indicates a focus on asset qualityBank Central Asia prioritises margin stabilisation over aggressive loan growth^[6].

Conclusion

Indonesian banks are demonstrating resilience through a mix of regulatory alignment, technological innovation, and strategic selectivity. While external headwinds persist, institutions that effectively manage foreign currency exposure and prioritize disciplined loan growth—such as Bank Mandiri and BCA—are well-positioned to outperform in 2025. Investors should focus on banks with robust liquidity buffers, diversified income streams, and proactive digital transformation strategies to capitalize on this evolving landscape.