Indonesian banking stocks posted a strong performance in May, with the IDX-Pefindo Prime Bank Index recording a monthly gain of nearly 10%. However, the outlook remains uncertain amid global trade tensions and slowing economic growth. Amid these challenges, Indonesian investors prefer more stable and safer high-dividend equities, particularly bank stocks.

The IDX-Pefindo Prime Bank Index tracks the performance of 10 investment-grade Indonesian banking stocks, including Bank Rakyat Indonesia, Bank Mandiri, Bank Negara Indonesia, Bank Central Asia, Bank Tabungan Negara, Bank CIMB Niaga, Bank Syariah Indonesia, Bank Danamon Indonesia, Bank Permata, and Bank Pan Indonesia.

The index rose 9.93% in May, outperforming the broader market; the IDX Composite increased 6.32% for the month. Year-to-date, the banking index has risen by 1.1%, compared with the IDX Composite’s 0.18% gain.

In the latest World Economic Outlook published in April, the International Monetary Fund ( IMF ) downgraded Indonesia’s economic growth forecast for 2025 to 4.7% from 5.1%. The revised forecast reflects global economic uncertainties, including the potential impacts of US trade policies and global trade tensions. Nevertheless, the country’s GDP growth remains above the Southeast Asia regional average, which is expected to be 4.1%.

On April 2, US President Donald Trump announced global tariffs with a baseline of 10% across all imports and significantly higher duties on some of America’s biggest trading partners, including Asean nations. On April 9, Trump paused most of the country-specific tariffs for 90 days, which helped restore investor sentiment to some extent. Following this, the Indonesian stock market began to recover.

Top performer

Among the constituents of the IDX-Pefindo Prime Bank Index, the most outstanding performer is Bank Permata, which has surged 150% year-to-date. PT Bank Permata’s major shareholder is Bangkok Bank Public Company Limited, which holds 89.12% of the bank’s shares. In May 2020, Bangkok Bank took over the shares previously held by Standard Chartered and Astra International. After the acquisition, the bank’s stock reached a historical high of around 3,000 rupiah ( 18.36 US cents ) at the end of 2020, then fell to 1,000 rupiah in 2023. Since January 2025, the stock has continued to rise, reaching 2,430 rupiah currently.

The high interest rate environment in 2024 has driven an overall increase in banks’ net profits to varying degrees. Bank Permata reported a net profit of 3.6 trillion rupiah in 2024, up 38.46% from 2.6 trillion rupiah in the previous year. The bank also recorded a 9% year-on-year growth in loan disbursements, reaching 155 trillion rupiah, with the corporate segment growing by 12% to 89 trillion rupiah.

Although bank stocks have shown strong growth, there are concerns about the sustainability of their fundamentals. Global and domestic economic challenges are expected to slow Indonesia’s credit growth in 2025.

“Regarding the Indonesian banking industry, actually the banks are expecting somewhat slower growth this year ( closer to 8%-9% rather than double digits ), due to the global uncertainty created by the tariffs, even if the actual tariffs may not be as high as initially proposed,” says Danan Dito, head of financial institutions ratings at Pefindo.

“Now that there is an ongoing legal process to block President Trump’s tariffs, it is creating even more uncertainty. Domestically, the banking sector is hampered by the purchasing power that is yet to fully recover. Hopefully, the recent rate cut of 25bps ( putting the Bank of Indonesia rate at 5.50% ) could spur some economic growth.”