Banking - Funding costs (HPDK) decline by the end of 2025

Banking - Funding costs (HPDK) decline by the end of 2025 The Indonesian banking sector closed the 2025 year with easing funding cost. According to the latest Bank Indonesia (BI) data, the Cost of Funds for Credit (HPDK) dropped to 3.35% in December, down from 3.41% the month prior. State-Owned Banks (BUMN) saw the biggest drop of 8 bps to reach 3.16%. This was back by government fund placements and a surge in corporate deposits. National Private Banks (BUSN) dipped 5 bps to 3.40%. A massive 10.03% year-on-year growth in third-party funds from both individuals and corporations. Foreign Bank Branches (KCBA) remained the lowest overall at 1.64% after a slight 2 bps decline. Regional Development Banks (BPD) bucked the trend entirely, with their costs actually rising by 3 bps to 4.40%, suggesting they are still feeling the heat of interest rate competition. (Source : Kontan) Comment : The Cost of Funds for Credit (HPDK) acts as the "raw material cost" for banks. By the end of 2025, a general downward trend emerged, primarily driven by a more accommodative monetary policy and healthy liquidity. This year, we believe liquidity landscape competition will continue softened. Additionally, the placement of government funds (SAL) provides a low-cost liquidity buffer. On this backdrop, we might witness more materialized transmission on previous and further rate cut and reducing the interest banks must pay to depositors. At the end of the channel, it will also trickle down to the basic policy rate (SBDK) or prime lending rate. This is a vital indicator for the real sector, as lower SBDK typically leads to cheaper loans. Maintain OW stance on the sector, with stock pecking order as follow: BMRI > BBCA and BRIS.