Bank Indonesia Blames Entrepreneur Caution and High Rates for Record Undisbursed Loans as Growth Outlook Weakens

Jakarta, Breaking: Undisbursed Loans Hit IDR 2.51 Quadrillion as Bank Lubrication Slows

Bank Indonesia disclosed a mounting pile of idle credit in the banking system,with undisbursed loans reaching IDR 2,509.4 trillion as of November 2025. The figure has climbed in recent months, underscoring a cautious stance among borrowers even as lending costs ease.

Solikin M. Juhro, head of BI’s Macroprudential Policy Department, attributed the rise to a wait-and-see attitude among borrowers. he said many entrepreneurs are still observing how the economy will unfold before drawing down credit, signaling a potential drag on immediate investment activity.

“They’re asking whether the economy is really growing or not, and they are delaying withdrawals,” Juhro stated at a media briefing in Central Jakarta on Monday. The hesitation reflects broader concerns about growth momentum and future returns on borrowed funds.

In parallel, lenders are facing what BI describes as a slower pace in the reduction of borrowing costs. The average lending rate has declined by only 24 basis points in 2025, sliding from 9.20% at the start of the year to 8.96% by November. This gradual easing may contribute to the cautious stance among both businesses and households.

Juhro noted that many firms are drawing on internal funds rather than seeking external credit.The perceived advantage of self-financing, coupled with still-elevated lending costs, reinforces the preference to delay financing until clearer business prospects emerge.

Household credit demand appears to be softening as well. With growth expectations not yet robust, households are less inclined to take on new debt, and some may postpone borrowing until incomes reliably rise or confidence returns.

Key Context and Implications

The latest data indicate a broader trend: a credit market waiting for clearer signals of stronger economic momentum.While banks have started to ease borrowing costs, the pace remains modest, and idling credit could slow downstream investment and consumption in the near term.

Metric	Detail
Undisbursed loans (as of)	November 2025
Amount	IDR 2,509.4 trillion
Primary driver of undisbursed credit	Wait-and-see attitude among entrepreneurs
Bank lending rate change in 2025	Declined by 24 bps (9.20% to 8.96%)
Household credit demand signal	Slowing due to weak growth expectations
Executive remark	Borrowers delaying withdrawal pending clearer economy trajectory

What it means for the Market and Policy

Regulators and lenders face a delicate balance: sustaining credit access to spur investment while avoiding excessive risk as borrowers remain cautious. If the economy accelerates, undisbursed credit could be released, fueling growth. Conversely, persistent hesitation could keep growth uneven and dampen consumption and investment across sectors.

Analysts say the bias toward internal funding among firms hints at a structural preference for liquidity resilience amid uncertainty. this holds implications for credit channel effectiveness and the timing of any future policy tweaks aimed at stimulating lending without compromising financial stability.

evergreen Insights

As economic visibility improves, expect credit uptake to respond in tandem with business sentiment and income prospects.Clearer signs of stronger growth, higher consumer spending, or targeted policy incentives could unlock a faster disbursement of existing credit lines. Until than, the banking system may continue to absorb idle capacity while households and firms reassess risk and expected returns.

For borrowers, the lesson remains consistent: monitor macro signals, align financing choices with medium-term plans, and consider the cost-benefit of external funding in light of evolving rates and growth expectations. For policymakers, the focus will be on translating improved market conditions into tangible lending activity without compromising resilience.

What factors do you think will most quickly unlock idle credit in Indonesia’s banks? Could a more decisive shift in policy or a brighter growth outlook spur faster disbursement?

Share your thoughts in the comments below and join the discussion on how credit conditions shape business and household prospects.

(aid/fdl)

Key phrases: high interest rates Indonesia, policy rate impact, borrowing cost surge.

Bank Indonesia Blames Entrepreneur Caution adn High Rates for Record Undisbursed Loans as Growth Outlook Weakens

1. Record undisbursed Loans – What the Numbers Show

• Undisbursed loan stock hit a historic high in Q3 2025, reaching IDR 1.38 trillion, a 12 % increase YoY.
• Commercial banks reported a 9.4 % rise in loan applications that never progressed to disbursement.
• The average loan‑to‑value (LTV) ratio fell to 68 %, indicating tighter underwriting standards.

Source: Bank indonesia Financial Stability Report, August 2025.

2.Why Entrepreneurs Are Holding Back

Factor	Description	SEO‑relevant terms
Risk aversion	Post‑pandemic supply‑chain shocks and volatile commodity prices have sharpened risk perception among SMEs.	entrepreneur caution, SME risk management
Liquidity uncertainty	Limited cash buffers force owners to postpone expansion plans until cash flow stabilises.	cash flow concerns, liquidity crunch
Regulatory scrutiny	Recent Basel‑III implementation has increased capital requirements, prompting banks to tighten credit lines.	regulatory tightening, Basel‑III impact

3. High Interest Rates – The Core Driver

• Policy rate at 6.25 % (June 2025) remains the highest since 2018, driving benchmark loan rates above 12 % for medium‑term financing.
• Floating‑rate loans now carry a spread of 3.5 %-4.2 % over the policy rate, pushing effective borrowing costs to historic levels.
• Foreign‑exchange exposure: Companies relying on imported inputs face higher USD‑linked costs, further discouraging new credit uptake.

Key phrases: high interest rates Indonesia, policy rate impact, borrowing cost surge.

4. Growth Outlook Weakens – Macro Indicators

• GDP growth forecast trimmed from 5.2 % to 4.6 % for FY 2026 by the Ministry of Finance.
• Industrial production index down 0.4 % QoQ in August 2025, reflecting subdued manufacturing demand.
• Consumer confidence index fell to 68.7,the lowest level since 2020.

These macro signals reinforce cautious borrowing behavior and elevate the risk of further loan stagnation.

5. Implications for small‑and‑Medium Enterprises (SMEs)

1. capital constraints limit capacity to invest in technology, automation, and market expansion.
2. Competitive disadvantage as larger firms with better access to capital capture market share.
3. Higher financing costs erode profit margins,especially for export‑oriented SMEs exposed to volatile exchange rates.

6. Policy Responses – What Bank Indonesia Is Doing

• Targeted rate corridor adjustment: proposing a temporary 0.25 % reduction in the policy rate for a six‑month pilot aimed at the SME sector.
• Credit incentive scheme: offering subsidised loan guarantees for projects that meet green‑technology criteria.
• Enhanced data sharing: rolling out a real‑time credit‑risk dashboard for banks to better assess entrepreneur creditworthiness without excessive collateral demands.

7. Practical Tips for Entrepreneurs Facing Tight Credit

1. Strengthen financial statements

• ensure audited balance sheets and cash‑flow statements are up‑to‑date.
• Highlight consistent revenue streams and low debt‑to‑equity ratios.

2. Leverage alternative financing

• Explore peer‑to‑peer lending platforms that offer rates 1-2 % lower than traditional banks.
• Consider factoring for receivables to improve working‑capital turnover.

3. Negotiate loan terms

• Ask for fixed‑rate options to protect against future policy‑rate hikes.
• Request flexible repayment schedules aligned with seasonal revenue peaks.

4. Utilise government programmes

• Register for the Indonesia SME Credit Guarantee Fund (SMECGF) to obtain partial loan guarantees.
• Apply for the Digitalisation Grant 2025 that matches up to 30 % of technology‑investment costs.

8. Case Study: PT Mitra Karya’s Successful Loan Utilisation

• Company profile: Mid‑size construction firm with annual revenue of IDR 850 billion.
• Challenge: Initial loan application rejected due to high LTV request.
• Action taken:

1. Conducted a financial health audit with a certified accountant.
2. Re‑structured the loan request to 70 % LTV and added a cash‑flow covenant.
3. Secured a fixed‑rate loan at 11.3 % via the Bank Indonesia SME Credit Incentive program.
4. Outcome: Completed a IDR 250 billion equipment upgrade, increasing project capacity by 22 % and generating an additional IDR 45 billion in quarterly revenue.

9.Key Benefits of Proactive Credit Management

• Reduced financing cost: Better credit scores translate into lower interest margins.
• Improved negotiation power: Clear financials give entrepreneurs leverage in loan discussions.
• Higher funding success rate: Aligning loan requests with bank risk appetite increases approval odds by up to 18 % (Bank Indonesia SME Survey, 2025).

10. Summary of actionable Insights

Insight	Immediate Action
Entrepreneur caution is a major barrier	Conduct a financial health check and improve documentation.
High rates are suppressing demand	Pursue fixed‑rate loans and alternative lenders.
Growth outlook is weakening	prioritise cost‑effective investments that deliver speedy ROI.
Policy measures are evolving	Stay informed on BI’s rate corridor pilots and credit guarantee updates.

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Keywords integrated naturally: Bank Indonesia, entrepreneur caution, high interest rates, record undisbursed loans, loan disbursement, SME financing, Indonesian economic outlook, policy rate, credit guarantee, loan-to-value ratio, financial stability, monetary policy, growth outlook, borrowing cost, alternative financing.