Lower interest rates – who benefits?

Interest rates have been trending lower over the past few years, driven by central bank rate cuts globally and a domestic push to preserve asset quality. Indonesia’s blended lending rate is down around ~40bp from early to late 2025 – marking record low interest rates for most segments. While loan growth remains sluggish at 7-8%, the benefit for corporates comes mainly through reduced borrowing costs during refinancing.

Interest rates falling to record lows

Lending rates across segments have continued to compress. On average, according to BI, working-capital rates are now below 9%, mortgage rates 7%, and auto loans around 9%, marking multi-year lows. The declines have been supported by: 1) an easing cycle globally, where several major central banks have started cutting rates, anchoring regional credit costs lower; and 2) domestic asset-quality defense as banks compete to retain high-quality borrowers, pushing down blended lending rates by around 40bp from early 2025. Despite the fall, Indonesia’s loan growth remains soft at around 7-8%, suggesting low business confidence, in our view.

Earnings sensitivity – who benefits the most

We quantify corporate sensitivity by measuring interest-expense savings for every 25bp decline in lending rates relative to FY26F profit. The result shows a concentrated group of names with material leverage exposure. Heavy asset businesses – such as TBIG, JSMR, MEDC, TOWR, SMRA and ISAT stand out to us, with savings equivalent to 35% of FY26F earnings for every 25bp decline.

On the other hand, cash-rich or low-geared names see limited impact as interest expense forms a small share of profits. Importantly, high leverage alone is not negative in a falling-rate environment; for infrastructure, tower, telecom and property names, lower rates directly improve cash flow, ROE and valuation headroom.

Fig. 1: Lower lending rate trend – on average all segments interest rate is down by ~40bp

 

Fig. 2: Stocks –sensitivity to earnings for every 25bp rate decline

 

Fig. 3: Still low loan growth – we view because of 1) banks are tightening and be very selective and 2) low business confidence

 

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Jupriadi Tan (jupriadi.tan@verdhana.id)

Gerald Hugo (gerald.hugo@verdhana.id)