Banking - NPL rise in Jan26, banking sector on alert for geopolitical risks

Banking - NPL rise in Jan26, banking sector on alert for geopolitical risks The banking industry is facing challenges in early 2026 as the ratio of non-performing loans (NPL) increases, amid global geopolitical uncertainties that could potentially pressure domestic economic performance. Data from the Financial Services Authority (OJK) shows that the disbursement of banking credit in January 2026 grew by 9.96% yoy to IDR8,557 tn. Along with the credit expansion, the NPL ratio in the banking industry also rose to 2.15%, while the NPL in the micro, small, and medium enterprises (MSME) segment was recorded at a higher level of 4.6%. This condition encourages banks to be more vigilant, especially regarding the secondary impacts of global geopolitical dynamics. The President Director of Maybank Indonesia, Steffano Ridwan, believes that global tensions have the potential to indirectly pressure credit quality. The state-owned bank BTN is also anticipating a potential deterioration in credit quality. Management has prepared around IDR 4 trillion for impairment allocation throughout 2026. With this step, BTN targets a reserve ratio approaching 130%, as part of a disciplined and conservative strategy in risk management. A similar cautious approach is applied by BCA. This bank actively monitors credit risk by maintaining intensive communication with debtors, especially in sectors expected to be affected by global conditions. Until the end of 2025, BCA has prepared a loan at risk (LAR) provision of 71.6% and a non-performing loan (NPL) provision of 183.8%. (Source : Kontan) Comment : The banking sector is currently healthy but defensive. The industry has learned from past crises (like 2008 or 2020) and is building its walls before the storm hits. However, if geopolitical tensions keep oil prices high through mid-2026, we may see banks tighten credit even further, which could slow down the very economic growth they are trying to support. On the other hand, the material impact likely to hit in 2H26, while latest domestic support prior the boiling geopolitical risk and more meaningful softer funding cost could become as solid cushion for 1H26 earnings result. While waiting and continuously watch the latest update from Middle East tension, we maintain overweight with stock pecking order BMRI > BBCA > BRIS.