The Implementation of Artificial Intelligence (AI) and Machine Learning in Credit Risk Management

The rapid development of Artificial Intelligence (AI) and Machine Learning has reshaped credit risk management practices within the financial services industry. In Indonesia, the adoption of AI-based credit risk assessment has gained increasing relevance due to the expansion of digital banking, the growth of fintech lending, and the rising complexity of credit portfolios. This paper examines the implementation of AI and Machine Learning in credit risk management within Indonesian financial institutions, focusing on institutional readiness and the regulatory direction established by the Financial Services Authority (Otoritas Jasa Keuangan/OJK) and Bank Indonesia (BI).<br><br>This study applies a qualitative descriptive approach through a systematic review of academic literature, regulatory guidelines, and policy documents related to AI governance and financial risk management. The analysis highlights key readiness factors, including technological infrastructure, data availability and quality, human resource capabilities, and internal governance structures. The findings suggest that large commercial banks demonstrate a higher level of preparedness for AI adoption due to stronger technological capacity and access to extensive data resources, while smaller banks and rural credit institutions continue to face limitations in infrastructure and skilled personnel.<br><br>From a regulatory standpoint, OJK plays a pivotal role in promoting the responsible use of AI by emphasizing prudential principles, transparency, accountability, and human oversight. Bank Indonesia complements these efforts by strengthening digital financial infrastructure to support systemic stability. Despite its potential benefits, the implementation of AI in credit risk management remains challenged by issues related to data protection, algorithmic bias, and regulatory adaptability. Therefore, coordinated governance and continuous regulatory oversight are essential to ensure that AI adoption supports financial stability and sustainable innovation in Indonesia.