Indonesia’s state-owned banks are heading into third-quarter earnings with loans still growing rapidly, but the government’s push for more lending is exposing them to rising credit and funding risks.

State lenders are being asked to do more to support economic growth, while their large exposure to state-owned enterprises leaves them vulnerable to restructuring losses. The broader banking system is also facing expensive funding and weaker repayment capacity among lower-income borrowers.

Analysts expect net income at PT Bank Mandiri was broadly flat from a year earlier, while profits at PT Bank Rakyat Indonesia and PT Bank Negara Indonesia may have slipped about 2.6% and 0.6%, respectively.

The government has placed about 299 trillion rupiah ($17 billion) of its cash with the lenders to bolster liquidity and support more lending, with the funds set to remain there through July 2027.

Industry loans grew 13.7% from a year earlier in August, led by investment and working-capital borrowing, according to Maybank Sekuritas Indonesia analysts Jeffrosenberg Chenlim and Faiq Asad. However, previously booked high-cost deposits may keep funding expenses elevated through the second half, while “some pressure persists” in consumer and small-business loans, they wrote in a report.

Those risks are emerging despite solid economic growth. Higher borrowing costs and weaker purchasing power are squeezing lower-income households, while private consumption, which accounts for more than half of GDP, grew more slowly than the broader economy in the second quarter.

The banks’ first-half disclosures point to the same squeeze. BNI said higher rates had begun to raise its cost of deposits, while Mandiri said tight liquidity and lower loan yields were weighing on margins. Mandiri has also been more selective in retail lending to protect loan quality.

At BRI, stress has been concentrated in micro lending, though the bank said the segment was showing “early stabilization,” with new bad loans down 27.8% from a year earlier.

A potentially bigger risk comes from Indonesia’s state companies. President Prabowo Subianto’s government is pressing ahead with an overhaul of the sector, raising the prospect of more restructurings among weaker firms. That could force state banks to set aside more money for potential loan losses, further pressuring earnings.

Loans to SOEs account for about 20% of BNI’s total lending and 18% at Mandiri, according to Bloomberg Intelligence. The figures do not show which borrowers may ultimately be restructured, but they indicate where potential losses could be concentrated if more troubled companies require government support.

The restructuring of state firms poses “modest but rising asset-quality risks” to the banks, said Rena Kwok, a senior credit analyst at Bloomberg Intelligence. Concentrated exposures can leave banks vulnerable to sudden jumps in credit costs, she added.

The main risks to the banks in the next six to 12 months are “policy-led growth outrunning funding,” potential SOE restructurings and continued softening in consumer and small-business loans, Kwok said.