The Heat Effect of KBMI 1 Bank Consolidation, But OJK Shouldn’t Force It, Okay!

By: Eko B. Supriyanto, Chairman of Infobank Media Group

The “death knell” from the Financial Services Authority (OJK) has been sounded. Banks in the Core Capital Bank Group (KBMI) 1 are being urged to consolidate. They can increase capital, acquire and merge. So, these days there are 38 banks that are thinking long and hard about whether to continue their banking business or to sell immediately.

Clearly, this consolidation regulation is the opposite of the previous regulation—when Pakto-88 was rolled out—it was easy to establish a bank. With only Rp10 billion, anyone could establish a bank. Anyone could own a bank, even grocery store owners.

The OJK’s move could actually have been predicted earlier. This is because, to become a KBMI 1 bank, the minimum capital requirement is below IDR 6 trillion. Meanwhile, the classification above that requires capital between IDR 6-14 trillion (KBMI 2). Capital between IDR 14-70 trillion falls into the KBMI 3 category, and KBMI 4 requires capital above IDR 70 trillion.

The OJK’s letter dated October 24, 2025, to 38 KBMI 1 banks is not just a routine letter. It is a strong signal that the resilience of Indonesia’s banking sector is being tested by four structural challenges: technological disruption, accelerated digitalization, global uncertainty, and cyber vulnerability. In this context, the OJK can no longer afford to be complacent; consolidation has become an inevitable strategic option. However, the OJK must also consider the condition of each bank.

According to data from the Infobank Research Bureau, the development of the banking sector up to September 2025 shows four key indicators of increasing pressure. First, banks are still struggling with credit growth. There is a tendency for intermediation to slow down. Take a look. Credit growth (yoy) fell from 10.85 percent in September 2024 to 7.70 percent in September 2025. This is a signal that the banking sector’s leverage in driving the economy is beginning to weaken.

Second, there is pressure on profitability. Net Interest Margin (NIM) continues to decline from 4.87 percent (Dec 2023) to 4.58 percent (Sep 2025). ROA also fell from 2.74 percent to 2.53 percent. This shows that bank profit margins are being eroded by competition and funding costs.

Third, credit risk is increasing, or non-performing loans (NPLs) are trending upward. Just look at how gross NPLs rose from 2.08 percent (Dec 2024) to 2.24 percent (Sep 2025). Net NPLs also rose from 0.74 percent to 0.87 percent. This is a warning sign for the quality of bank assets, especially amid economic uncertainty, even though Indonesia’s economic growth remains at around 5.04 percent.

Fourth, liquidity is still maintained. Although LCR and AL/DPK are still above the safety threshold, the downward trend in CAR from 27.65 percent (Dec 2023) to 26.15 percent (Sep 2025) shows that bank capital is increasingly under pressure from asset growth and operational risks.

Amid these banking conditions, the impact of the OJK’s appeal on the 38 banks in the KBMI 1 group—most of which are small to medium-sized banks with limited capital—has serious consequences. At least, there are four critical issues.

First, capital pressure and economies of scale. KBMI 1 banks must choose: merger, acquisition, or divestment. Without adequate scale, they will find it difficult to invest in technology and meet the OJK’s minimum capital requirements.

Second, investment in technology for digital transformation is no longer an option, but a necessity. Banks that fail to adapt will be abandoned by customers and lose out to competition from fintech and digital banks. Even more serious is the rise of cyber heists in banking.

Third, governance and risk management requirements. The OJK is not only calling for consolidation, but also the implementation of Good Corporate Governance (GCG) and stricter risk management. This means compliance costs will rise, and only efficient banks will survive.

Fourth, retreat or survive? For some banks, consolidation could be an elegant solution. For others, it may be the beginning of an unpleasant exit process.In the short term, this appeal will trigger a wave of consolidation among KBMI 1 banks. Some will be acquired by larger banks, some will merge to create more competitive entities, and some may switch functions to become Rural Banks (BPR) or even close down.

However, in the long term, this step could strengthen the national banking structure. Consolidated banks will have greater capital, higher efficiency, and better technological investment capabilities. This will ultimately increase the resilience of the banking sector as a whole.

However, the OJK should not force or even pressure regional governments, because the minimum capital requirement is IDR 3 trillion, and KBMI 1 capital is below IDR 6 trillion. If this is enforced, many regions will lose control over their Regional Development Banks (BPD). The appeal should not become coercion.

On the one hand, this is good, because the biggest problem facing BPDs is their shareholders or the regions themselves. However, the important role of BPDs in the regions is being strengthened, and the OJK has a major role in protecting the integrity of BPDs from the “dirty” hands of regional heads who are now “panicking” in search of additional funds due to the slow transfer of funds to the regions (TKD) – because of the central government’s efficiency program. It is possible that this consolidation call is primarily aimed at bank subsidiaries that were previously in a precarious state.

However, this is also inconsistent in policy, as a number of KBMI 4 banks have bank subsidiaries that were previously ordered by the authorities to be rescued. However, it is possible that this OJK appeal can indeed start with KBMI 1 banks owned by KBMI 3 and KBMI 4 banks. However, if the bank subsidiaries are healthy and fit, they should not be forced. Let them live, especially since they have become healthy digital banks. But, if the condition of the “child” is only to “clean up” bad debts, then it must be swallowed by its ‘mother’ to be merged.

The principle is, even though the bank is small, it is included in KBMI 1 and does not violate the minimum capital requirements with its healthy condition, so it should not be “swept clean” by the OJK. Let these healthy KBMI 1 banks become part of Indonesia’s banking ecosystem. The OJK should not be afraid of banks going bankrupt in the Prabowo era and easily merge them with strong investors. Banks with strong capital are good, but healthy banks are important, even if they are small. (*)