📒 Quick Take: Indonesian State Capitalism
President Prabowo Subianto ordered state-owned banks to give out cheap housing loans.
The president instructed the state-owned banks to extend mortgage installments for workers to as long as 40 years, with a maximum interest of 5% a year.
Investors may assign a higher risk premium for Indonesian assets if the political risk is seen to significantly outweigh the expected returns.
Indonesian state-owned banks are tasked with executing policy objectives that increasingly depart from market practice.
In his May Day speech on 1 May 2026, President Prabowo Subianto reportedly said that he had instructed the state-owned banks to extend mortgage installments for workers to as long as 40 years, with a maximum loan interest of 5% a year.
This is far longer than the typical mortgage tenor and priced below market rates, which may risk distorting loan allocations at the expense of more productive investments, according to a friend with extensive experience in the banking industry.
I noted on 30 July 2025 that Indonesian state-owned banks have been upstreaming dividends, channelling loans for the president’s initiatives, and supporting their peers. I also wrote on 1 February 2026 that Defence Minister Sjafrie Sjamsoeddin – a close ally of the president – told local media that the directors of state-owned banks would be replaced with those who “love the nation”.
On 9 March 2026, Fitch Ratings revised the outlook for four state-owned banks – Bank Mandiri, Bank Rakyat Indonesia (BRI), Bank Negara Indonesia (BNI) and Lembaga Pembiayaan Ekspor Indonesia (Indonesia Eximbank) – to negative from stable.
The rating agency warned that Indonesia’s growing reliance on state-owned banks to support government programs could pose longer-term risks to asset quality, even though the banking sector currently remains resilient.
While the president’s May Day speech was a continuation of this trend, the degree of national service being requested from the state-owned banks has ratcheted up even more.
Indonesian banks have historically enjoyed stable net interest margins (NIM) that are among the highest in the region. Ordering state-owned lenders to extend mortgage tenors to as long as four decades at below-market rates could compress their NIM and raise the credit risk, as policy agenda may supersede the commercial evaluation of prospective borrowers.
The banking sector is not the only one that has to comply with Prabowo’s populist policies.
A new rule that was announced by the former general would reportedly raise the minimum portion of ride fares allocated for drivers to 92%, up from around 80% previously. In response, ride-hailing companies GoTo and Grab said they would assess the operational and financial implications of the regulatory change.
Chinese Characteristics
The Indonesian president openly admires Deng Xiaoping, the late Chinese leader who pioneered “socialism with Chinese characteristics” – a blend of state planning and market mechanisms – in the 1980s.
State-linked entities have long tried to juggle commercial goals with public service, but complications may arise when the balance overly tilts away from market practice.
Chinese banks have amassed a sizeable exposure to local government financing vehicles (LGFVs), which racked up trillions in hidden debt to build infrastructure across the country. Not only are the banks intertwined with the LGFVs and property developers, household wealth in China is also tied to real estate, hampering official efforts to undo this Gordian knot.
While Indonesia’s property sector is not as distressed as China’s, its state-owned enterprises control large swathes of the economy and are interconnected via a web of criss-crossing relationships. Indonesian state-owned banks also tend to roll over loans to their troubled peers, which may mask the true level of non-performing credit.
The Indonesian Employers Association (Apindo) warned on 14 April that despite its steady economic growth, the Southeast Asian nation’s “labour conditions are showing warning signs” as 1.5 million people are estimated to be left jobless each year.
However, Indonesia’s policymakers seem to be growing more sensitive to perceived criticism or research that diverges from the official narrative.
In February, Finance Minister Purbaya Yudhi Sadewa chastised Citigroup economist Helmi Arman for making a forecast that Indonesia’s fiscal deficit risked breaching the legal cap of 3% of GDP this year. Two months later, the finance minister disputed the World Bank’s move to cut Indonesia’s 2026 growth forecast to 4.7% from 4.8%.
Cabinet Secretary Teddy Indra Wijaya also took aim at an “inflation of observers” who were allegedly shaping public opinion against the Prabowo administration. “[It’s fine to] criticise us, but let’s not make statements that create anxiety or unsettle the public,” he reportedly said. “Everything is stable, everything is under control.”
I wrote last month that Indonesia is a resourceful nation with the ability to navigate obstacles when necessary. However, the danger for Indonesia is that investors will assign a higher risk premium for the country’s assets – or exit entirely – if the political risk is seen to significantly outweigh the expected returns.
Acrostics Asia Coverage
Acrostics Asia is an independent credit intelligence provider that connects the dots across Asian sovereigns and state-linked entities.