Flash Focus: Indonesia Banks - SAL and KLM Support a System Running at 95.5% Underlying LDR

The government plans to add IDR70tr of SAL deposits to state-owned banks, comprising IDR40tr this week and another IDR30tr subsequently, while extending IDR281tr of existing placements to July 2027. The measure should improve near-term funding visibility and ease immediate liquidity pressure at Himbara. However, IDR100tr remains available as standby fiscal liquidity and may still be withdrawn should the government require the funds, leaving part of the support potentially reversible.

We view the additional placement and maturity extension positively for short-term liquidity, but SAL should not be treated as equivalent to permanent customer deposits. The funds should reduce the immediate need for state-owned banks to compete aggressively for expensive deposits and wholesale funding. Nevertheless, as SAL represents government cash management rather than organically generated deposits, banks may remain reluctant to deploy the full amount into longer-duration loans, particularly given the possibility of future withdrawals.

Underlying system liquidity is already heavily supported by policy measures. As of the first week of July 2026, banks had received IDR431.9tr of KLM incentives, comprising IDR369.0tr through the lending channel and IDR62.9tr through the interest-rate channel. Without these incentives, banks would have needed to maintain up to IDR431.9tr of additional reserve balances at BI, materially reducing deployable liquidity. BI’s subsequent decision to raise the maximum KLM incentive to 6.0% of deposits from 5.5%, alongside renewed SAL placements, suggests that authorities are using an increasingly broad set of tools to contain liquidity pressure.

We therefore see SAL and KLM as a liquidity bridge rather than a structural resolution. Based on our calculation, industry LDR would have reached approximately 95.5% in Jun-26 after excluding SAL deposits, indicating that underlying loan growth continues to materially outpace organic deposit formation. The additional SAL placements and expanded KLM should support near-term LCR and reduce funding-cost pressure, but liquidity could tighten again once fiscal deposits are withdrawn unless deposit mobilisation improves or loan growth becomes more disciplined.

Note: Jun-26 industry deposits and LDR have been adjusted to exclude SAL placements. Historical figures remain unadjusted due to the lack of comparable SAL data.