The Mastermind Behind the Decline in IHSG and State-Owned Bank Shares

As February 2025 draws to a close, trading in Indonesia's stock market is marked by a red hue spreading like a bloody battle. The Composite Stock Price Index, or IHSG, has been battered as foreign investors opt to withdraw from the domestic financial market.

In fact, five months ago, the IHSG had recorded its highest level, reaching 7,905.39 on September 19, 2024. However, the IHSG gradually declined and by the end of February 2025 closed at 6,270, weakening by 11.43 percent compared to the market's closing at the end of last year. This is even the lowest since the Covid-19 pandemic in September 2021.

The correction is inseparable from the factor of foreign investors leaving the domestic stock market. Based on transaction data from February 24-27, 2025, non-resident investors in the domestic stock market recorded a net sell of IDR 7.31 trillion. Furthermore, since the beginning of the year, the net outflow of foreign capital has been recorded at IDR 15.47 trillion.

In line with this, the stock prices of state-owned enterprise (BUMN) banks also plummeted. The shares of PT Bank Negara Indonesia (Persero) Tbk, or BNI, closed at Rp 4,030 per share during trading on February 28, 2025, reflecting a correction of 6.27 percent over the week.

During the same period, the shares of PT Bank Rakyat Indonesia (Persero) Tbk, or BRI, also declined by 13.62 percent. A similar condition was experienced by PT Bank Mandiri (Persero), whose shares fell by 9.35 percent.

According to the Chief Executive of Banking Supervision of the Financial Services Authority (OJK) Dian Ediana Rae, the plunge in the IHSG and banking stock prices was caused by foreign investors' selling actions based on their risk appetite calculations. This was influenced by both external and internal factors, such as the divergence of slowing global economic growth and the ongoing uncertainty of the global financial market.

From an external perspective, the strengthening of the economy and tariff policies of the United States have restrained the pace of inflation decline. As a result, expectations for a reduction in the U.S. benchmark interest rate have become limited or remain within a high-interest-rate regime. Furthermore, the strengthening of the U.S. dollar exchange rate following the U.S. elections has also influenced investors' perspectives on assets denominated in rupiah.

"This includes bluechip stocks, such as banking stocks. Internal factors that influence include market liquidity conditions in responding to the global and domestic economic situation which is still unstable, as well as the decline in people's purchasing power," said Dian in a press conference on the results of the OJK Monthly Board of Commissioners Meeting (RDKB) in February 2025, online, Tuesday (4/3/2025).

Nevertheless, banking industry players remain optimistic by continuing to focus on solid fundamental performance and good governance to maintain investor confidence. The results of the Financial Services Authority (OJK) Banking Business Orientation Survey (SBPO) for the first quarter of 2025 indicate that this optimism is driven by expectations of macroeconomic stability, improved intermediation functions, and managed risks.

The Financial Services Authority (OJK) also recorded that national banking credit as of January 2025 continued its double-digit growth, amounting to 10.27 percent year-on-year, reaching Rp 7,782 trillion. This growth slightly slowed compared to December 2024, which stood at 10.39 percent, and January 2024, which reached 11.83 percent.

In line with that, credit quality reflected in the non-performing loan (NPL) ratio remained stable at 2.18 percent gross and 0.79 percent net. On the other hand, the collection of Third Party Funds (DPK) as of January 2025 was IDR 8,879.2 trillion or grew 5.51 percent annually, higher than December 2024 which was 4.48 percent.

Our economic growth will also be influenced by banking performance, so we must really maintain a positive perception and good performance. We will monitor this condition and continue to collaborate with banks, government and related institutions to ensure that banking performance has been very good.

Therefore, OJK urges banking industry players to increase transparency and proactive communication, both to retail and institutional investors to minimize information asymmetry related to performance gaps. With prudent risk management, national banking can maintain growth stability amidst the challenges of global and domestic economic conditions.

"Our economic growth will also be influenced by banking performance, so we must really maintain a positive perception and good performance. We will monitor this condition and continue to collaborate with banks, government and related institutions to ensure that banking performance has been very good," said Dian.

Meanwhile, JP Morgan, a multinational financial services company, in its study on Indonesian Banking, is of the view that the sell-off of banking stocks in Indonesia occurred because investors were recalculating the fair price of banking stocks. However, there is an opportunity for banking stocks to recover in the near future.

Since the beginning of the year, BUMN stock prices have corrected 17 percent or deeper than the IHSG contraction. In the medium term, the banking industry will still face liquidity challenges, which have the potential to become asset quality risks. This condition can be overcome if there is a significant change in the flow of public deposits.

"Therefore, we see (banking) stock prices likely to move within a limited range over the next few quarters," wrote Senior Associate at JP Morgan Chase Harsh Wardhan Moldi with a team of analysts, in a JP Morgan study.

In line with that, JP Morgan also revised upwards the recommendation ratings of a number of banking stocks, with an estimated rebound along with the re-entry of foreign capital. As a result, the prices of banking stocks, especially state-owned banks, turned green on Monday (3/3/2025), although the following day's trading contracted slightly.

On the other hand, some parties argue that the departure of foreign investors from the domestic stock market occurred along with the launch of the Daya Anagata Nusantara Investment Management Agency, aka BPI Danantara, on February 24, 2025. BPI Danantara will manage seven BUMNs, including state-owned banks, such as Bank Mandiri, BNI, and BRI.

The February 2025 Indonesian Economic Development Monthly Report released by Samuel Sekuritas Indonesia stated that the existence of BPI Danantara, which will manage state assets worth 900 billion US dollars, has raised concerns among market players.

Investors are concerned that transparency, governance and political influence could lead BPI Danantara to a similar fate as Malaysia’s 1MDB. As a result, market sentiment is cautious over political uncertainty, regulatory changes and concerns about fiscal sustainability.

This fiscal sustainability is also related to the continuation of government debt, the allocation of budget results from efficiency for Danantara and the Free Nutritious Meals program, and monetary uncertainty in terms of speculation on government debt financing by Bank Indonesia.

Similarly, senior economist at Paramadina University Wijayanto Samirin said that the decline in BUMN shares was a factor in the IHSG collapse. One of the reasons was that foreign investors who were profit-oriented were worried that Danantara would be development-oriented. "

"In addition, there are concerns related to (Danantara) transparency, GCG (governance), politicization, and so on. So, Danantara, something important, started its life with extraordinary distrust. So, when it was still a baby, it already experienced a deficit of trust from the public and investors," in a discussion entitled 'Are Danantara State Fund Managers Immune from the Law?', online, Saturday (1/3/2025).

OJK as a regulator in the financial sector, which is also emphasized in the P2SK Law, is tasked with regulating and supervising the financial services industry, including of course state-owned banks, so that their business processes always prioritize good governance, prudential principles, and good risk management practices.

Not only disappointed by the corrupt behavior of public officials, Danantara, which from the beginning was not transparent and seemed to be in a hurry, made negative public sentiment even stronger. Therefore, the public's skeptical attitude needs to be heard and seen as a momentum for improvement for BPI Danantara policy makers.

Responding to the polemic related to Danantara, OJK ensures that the governance aspects, prudential principles, and risk management of state-owned banks under the Daya Anagata Nusantara Investment Management Agency, also known as Danantara, will be maintained. This is as mandated in Law Number 4 of 2023 concerning the Development and Strengthening of the Financial Services Sector (P2SK).

The regulation mandates OJK to regulate and supervise the financial services industry, including state-owned banks. Therefore, OJK will continue to coordinate with the Ministry of State-Owned Enterprises and BPI Danantara to ensure that important aspects of running a banking business are still carried out.

"OJK as a regulator in the financial sector, which is also emphasized in the P2SK Law, is tasked with regulating and supervising the financial services industry, including of course state-owned banks, so that their business processes always prioritize good governance, prudential principles, and good risk management practices," said Chairman of the OJK Board of Commissioners Mahendra Siregar in the OJK RDKB press conference in February 2025.

Therefore, OJK will support various socialization activities, and communication by BPI Danantara related to the purpose of its existence, as well as the targets to be achieved. It is hoped that BPI Danantara can implement international best practices as a Sovereign Wealth Fund (SWF), so that it can improve BUMN performance, investment and economic growth.

Thus, the redness of the IHSG and state-owned bank stocks cannot be separated from the development of global dynamics that tend to be dynamic. However, domestic factors should still be considered so that the impact of the risk of global uncertainty does not simply spread and its impact is felt.