Fitch Ratings expects Indonesia’s Islamic banking sector to record financing growth of around 10% in 2026, while maintaining its share of the overall banking system at approximately 8%. The steady expansion reflects continued demand for Sharia-compliant financial services across the country.
Growth is expected to be supported by government-led consolidation initiatives, broader financial inclusion efforts, and the introduction of new products such as bullion banking. These factors are helping Islamic banks tap into Indonesia’s large underbanked Muslim population and expand their customer base.
Despite the emergence of new large Islamic banks, Fitch believes competition within the sector will remain largely unchanged. Most new players are spin-offs from existing banking operations. PT Bank Syariah Indonesia (Persero) Tbk (BSI, BBB-/AA+(idn)) is expected to remain the market leader, holding around 40% of total Islamic banking market share.
The dominance of large banks is further reinforced by the fact that around 80% of Islamic banks in Indonesia have relatively small capital bases and fall into the lowest regulatory capital category. This limits the scope of services these smaller banks can offer and reduces competitive pressure on the largest institutions.
Fitch projects the sector’s non-performing financing ratio to edge up to about 2.5% by the end of 2026, from 2.3% in November 2025. This increase reflects Islamic banks’ heavier focus on retail financing, which makes them more sensitive to potential economic challenges. However, risks are partially offset by strong reserve coverage of 146%.
Overall profitability is expected to remain resilient, supported by solid financing growth and strong net operating margins, which are likely to offset the impact of higher credit costs.