Indonesia’s financial sector has undergone significant changes and growth over the past decade.
With a population of over 270 million people, the country has a large and growing middle class, which is driving demand for financial services. In this article, we will explore the most important areas, trends, and systems in Indonesia’s financial sector.
What are the most important segments in finance sectors in Indonesia?
1. Banking
Banking is one of the most important areas of Indonesia’s financial sector. The country has a large number of banks, both local and international. The largest local banks include Bank Mandiri, Bank Rakyat Indonesia (BRI), and Bank Central Asia (BCA). The largest international banks operating in Indonesia include Citibank, HSBC, and Standard Chartered.
In recent years, Indonesia’s banking sector has seen significant growth. According to the Financial Services Authority (OJK), the total assets of the banking industry in Indonesia reached IDR 8,908 trillion (USD 620 billion) in September 2021, up from IDR 7,744 trillion (USD 540 billion) in September 2020. The industry’s loan portfolio also grew, reaching IDR 6,441 trillion (USD 448 billion) in September 2021.
The growth of Indonesia’s banking sector has been driven by a number of factors, including the country’s economic growth, increasing demand for credit, and the government’s efforts to promote financial inclusion. However, the sector still faces challenges, including high levels of non-performing loans (NPLs) and low levels of financial literacy among the population.
2. Capital Markets
Indonesia’s capital markets have also seen significant growth in recent years. The country has two stock exchanges, the Indonesia Stock Exchange (IDX) and the Surabaya Stock Exchange (SSX). The IDX is the larger of the two, with a market capitalization of IDR 8,184 trillion (USD 570 billion) as of November 2021.
In addition to the stock exchanges, Indonesia also has a bond market. The government has been working to develop the bond market in recent years, with the aim of increasing the availability of long-term financing for both the public and private sectors.
One of the major trends in Indonesia’s capital markets is the increasing participation of retail investors. According to the IDX, the number of retail investors in the stock market has increased from 640,000 in 2015 to over 3.3 million as of September 2021. The government has also been working to encourage more institutional investors to participate in the market, with the aim of increasing liquidity and reducing volatility.
3. Insurance
The insurance industry is another important area of Indonesia’s financial sector. The country has a large and growing middle class, which is driving demand for insurance products. The largest insurance companies in Indonesia include PT Asuransi Jiwa Manulife Indonesia, PT Prudential Life Assurance, and PT Asuransi Allianz Life Indonesia.
According to the OJK, the total assets of the insurance industry in Indonesia reached IDR 594 trillion (USD 41 billion) in September 2021, up from IDR 487 trillion (USD 34 billion) in September 2020. The industry’s gross written premiums also grew, reaching IDR 156 trillion (USD 11 billion) in September 2021.
One of the major trends in Indonesia’s insurance industry is the increasing use of digital technology. Insurtech startups have been emerging in Indonesia, offering innovative products and services to customers. The government has also been working to promote the use of digital technology in the insurance industry, with the aim of increasing efficiency and reducing costs.
4. Fintech Growth
Indonesia’s financial sector has also experienced rapid growth of fintech in recent years. In fact, according to a study by Google, Temasek, and Bain & Company, Indonesia is on track to become the largest digital economy in Southeast Asia by 2025, with fintech playing a significant role in this growth.
The government has also encouraged the growth of fintech by introducing various policies to support the industry.
One of the most notable fintech startups in Indonesia is GoPay, which is part of the larger e-commerce platform, Gojek. GoPay provides a digital wallet that allows users to make payments for various services, such as transportation, food delivery, and online shopping. GoPay has been successful in gaining a large user base due to its ease of use, convenience, and popularity of the Gojek platform.
What are the biggest trends in the finance sector in Indonesia?
1. Growing Middle Class
Indonesia’s growing middle class has also contributed to the growth of the financial sector. As more Indonesians enter the middle class, there is an increasing demand for financial services such as savings accounts, loans, and insurance.
This trend is expected to continue as Indonesia’s economy grows and more people are able to access higher-paying jobs and better education.
One of the challenges of serving this growing middle class is that many Indonesians still lack access to formal financial services. According to the World Bank, only around 36% of Indonesians over the age of 15 have an account at a formal financial institution. This presents an opportunity for banks and other financial institutions to expand their services and reach more people.
2. Digital Transformation
The financial sector in Indonesia is also undergoing a digital transformation, with many banks and financial institutions investing in digital technology to improve their services and reach more customers. This has been driven by the growth of fintech, changing consumer preferences, and the need to remain competitive in a rapidly changing industry.
One example of a bank that has embraced digital transformation is Bank Central Asia (BCA), one of the largest banks in Indonesia. BCA has invested heavily in digital technology, including mobile banking, online banking, and digital wallets. This has helped the bank to reach more customers and improve the efficiency of its operations.
