Artificial Intelligence and Its Implications for Banking and Finance in Indonesia

Abstract

The present study examines the impact of Artificial Intelligence (AI) adoption on the performance of Indonesia's banking and financial sectors. By comparing data from the World Bank, CEIC, BIS, and Otoritas Jasa Keuangan (OJK) during the pre-AI (2002–2018) and post-AI (2019–2023) periods, the research identifies key trends. The study shows that, after AI implementation, non-banking financial institutions (NBFIs), mutual funds, and insurance companies experienced growth, while the number of commercial banks declined. The growth rate of banks dropped from 15.17% to 7.24%, despite an increase in total assets. The analysis reveals that the top five banks showed higher asset concentration, lower cost-to-income ratios, reduced administrative expenses, improved lending-deposit spreads, and fewer non-performing loans. AI contributed to slight improvements in financial inclusion and increased operational efficiency, leading to a greater enhancement in Return on Equity (ROE) compared to Return on Assets (ROA). These findings suggest that AI promotes stability and efficiency but also increases market concentration. This outcome underscores the need for strategic AI investments to ensure balanced growth in the sector.