Malaysian banks navigate rising funding costs in Indonesia

KUALA LUMPUR: Malaysian banks operating in Indonesia are stepping up efforts to protect their profit margins as rising funding costs and intensifying competition for deposits put pressure on the country's banking sector.

CIMB Securities Sdn Bhd said PT Bank CIMB Niaga Tbk and PT Bank Maybank Indonesia Tbk were among banks seeking to defend their net interest margins (NIM) through loan repricing and improvements in their funding mix.

The pressure follows Bank Indonesia's cumulative 100-basis-point interest rate increases in May and June this year, which have pushed up banks' funding costs faster than lending rates can be adjusted.

In a research note, CIMB Securities said Indonesian banks were facing a temporary squeeze on margins as deposit rates typically adjusted within weeks, while lending rates could take several months to catch up.

The research firm, which visited Jakarta from Oct 7 to 9 to meet regulators and Indonesian banks, said the ability to manage these pressures would depend largely on banks' access to low-cost deposits and their pricing power.

CIMB Niaga, the Indonesian banking arm of CIMB Group Holdings Bhd, maintained a strong current account and savings account (Casa) mix of 72 per cent.

The bank has been taking a more proactive approach to protecting its margins by optimising wholesale and repurchase agreement funding while stepping up loan repricing.

CIMB Niaga recorded loan growth of 6.6 per cent in the first half of 2026, exceeding its full-year guidance of three to five per cent.

Its NIM stood at 3.84 per cent, within its full-year guidance of 3.8 to four per cent, while return on equity (ROE) was 12.6 per cent.

Meanwhile, Maybank Indonesia, a subsidiary of Malayan Banking Bhd (Maybank), is seeking to improve its funding mix by increasing Casa and transactional deposits to reduce reliance on more expensive term deposits.

The bank is also repricing existing floating-rate loans to support asset yields and mitigate further margin pressure.

Maybank Indonesia recorded loan growth of 3.8 per cent in the first half of 2026, with NIM at 4.28 per cent.

Its ROE stood at 4.64 per cent, while its cost-to-income ratio was 71.57 per cent.

CIMB Securities said funding conditions across Indonesia's banking sector were becoming increasingly challenging as loan growth continued to outpace deposit growth.

Industry loans expanded 13.65 per cent year-on-year in August, compared with deposit growth of 10.9 per cent.

The industry's loan-to-deposit ratio also increased to 92.7 per cent in August from 89 per cent at the end of 2025, reflecting greater competition for funding.

The research firm said funding-cost pressures could persist into the first half of 2027, particularly as temporary government cash placements with state-owned banks are withdrawn.

It said banks with stronger Casa franchises and greater flexibility to adjust lending rates were better positioned to withstand the higher interest rate environment.

Bank Indonesia kept its benchmark interest rate unchanged at 5.75 per cent on Oct 21, but CIMB Securities sees scope for another 25-basis-point increase to six per cent by year-end if volatility in the rupiah intensifies.

The firm said aggressive loan repricing could also weaken credit demand and increase financial pressure on borrowers, making a sustained recovery in banking margins far from certain.

It said competitive positioning among Indonesian banks would increasingly depend on funding strength, pricing power and disciplined capital allocation rather than loan growth alone.