OJK Warns Indonesia Forest and Land Fires Threaten Banking Sector

Climate Crisis Escalates Across Indonesia

Driven by extreme drought, Nusantara Atlas detected approximately 734,000 hotspots across Indonesia in mid-September 2026, marking a figure over 30% higher than the 2019 wildfire season, according to BBC reports. Since January, at least 895,657 hectares of land have burned, an area nearly six times the size of Greater London. The physical impacts expanded into a public health and environmental crisis by September 24, with respiratory illness cases reaching 175,000, including more than 40,000 toddlers suffering from pneumonia and bronchitis.

Emergency operations involved the deployment of more than 54,000 personnel, alongside international support from Malaysia and Japan. Dozens of water-bombing aircraft and joint cloud-seeding operations with Japan’s Self-Defence Forces worked to combat fires in challenging peatland terrains. Toxic smoke triggered widespread school closures, disrupted local commerce, and degraded air quality across Indonesia, Malaysia’s Sarawak region, Singapore, and parts of the Philippines. The haze also impacted local wildlife, resulting in the death of a critically endangered orangutan rescued from a palm oil plantation in West Kalimantan and reports of protected proboscis monkeys burned alive. In response, indigenous and civil society groups filed a class-action lawsuit against central and regional government authorities, alleging negligence in preventing the recurring disasters.

Banking Sector Pressures and Non-Performing Loans

According to the OJK, these severe weather phenomena represent physical climate hazards that immediately impair corporate revenue streams, operational expenses, and the supply chains of the real sector.

Financial institutions and rural banks—formally designated as Bank Perekonomian Rakyat or BPRs—that maintain heavy lending concentrations in agrarian-dependent or fire-vulnerable areas encounter greater risks of non-performing loans compared to lenders with geographically dispersed portfolios. Despite these localized risks, OJK stress tests confirm that capital levels across commercial banks remain sufficient to absorb potential climate-induced losses. National credit quality stayed stable, with the gross NPL ratio at 2.09% and net NPL at 0.82% in June 2026. Total bank lending grew 13.58% year-on-year in July 2026, reaching IDR9,135 trillion ($510.6bn), up from 12.67% in June. However, micro, small, and medium enterprise (MSME) lending grew by just 1.62%, highlighting the acute vulnerability of smaller, agrarian-based borrowers facing severe climate and health crises.