PALMOILMAGAZINE, JAKARTA – The escalating tension between Indonesia’s push for forest area regulation and the ongoing operations of the palm oil industry is now drawing the concern of the banking sector. As the government intensifies efforts to enforce forestry laws, financial institutions face a new dilemma: how to maintain credit quality amid growing regulatory uncertainty over land legality.
A significant portion of palm oil plantations affected by forest area enforcement policies currently serve as collateral for bank loans. If these lands are declared illegal or face legal complications, their value as collateral could be severely impacted—raising the risk of non-performing loans (NPLs) and potentially triggering a wider shock to financial stability.
According to the Financial Services Authority (OJK), the NPL ratio in the agricultural sector, which includes crude palm oil (CPO) businesses, stood at 2% as of January 2025—the highest in the past five months. Although this marks a slight improvement from 2.02% in January 2024, the figures suggest persistent underlying pressure.
Also Read: Palm Fresh Fruit Prices Unfair, Berau Council Urges Palm Oil Companies to Review Pricing System
Meanwhile, Bank Indonesia data shows that lending to the sector has reached IDR 553 trillion, representing around 7.19% of total national credit. Given this level of exposure, the palm oil industry poses a significant macroeconomic risk that cannot be ignored.
Major banks are responding with caution. Bank Danamon, for instance, reported that its palm oil NPLs remain below 0.1%, but the bank still enforces prudent credit limits, capping its exposure to the sector at under 5% of its total lending portfolio.
CIMB Niaga has adopted a neutral stance. “We do not see a significant concentration of risk in this sector,” said President Director Lani Darmawan, as quoted by Palmoilmagazine.com via Kontan on Thursday (April 24, 2025). However, she emphasized that borrowers must comply with environmental sustainability principles as a prerequisite for financing.
Bank Central Asia (BCA) has taken a firmer stance, only extending credit to palm oil operators certified under ISPO or RSPO standards. “We’ve also implemented early warning systems to detect any potential NPL spikes,” said BCA EVP of Corporate Communication, Hera F. Haryn.
This situation presents a growing policy challenge: how to uphold environmental and forestry laws without causing unintended disruption in the financial sector. Unless the legal status of affected plantation lands is resolved soon, systemic risks within the banking industry may no longer be theoretical—they could become reality. (P2)
