Friday, February 10, 2012
BI Swoops to Impose Interest Rates on Commercial Banks
Source: Jakarta Globe
Grace Dwitiya Amianti & Francezka Nangoy



In a bold step to further prop up lending, the central bank said on Friday that it will nominate the lending interest rate for the nation's commercial banks by the close of the first quarter, an unprecedented move in Indonesia.

Bank Indonesia governor Darmin Nasution said on Friday that commercial lenders have not offered any "positive" response to the central bank's earlier lending rule, which required the lenders to publish their prime lending rates.

That rule, introduced in March last year, applied to all banks with assets worth more than Rp 10 trillion ($1.11 billion).

Hoping that the country's lenders would follow by example, the central bank has cut its own key policy rate three times in the past five monthly meetings. But many of Indonesia's commercial banks have not lowered their lending rates correspondingly.

"Apparently, cutting the benchmark rate has not been able to force banks to cut their lending rates," Darmin said.

The central bank has cut its own key rate by 1 percentage point since October.

To further encourage the lenders, Bank Indonesia is requiring them to publish targets on trimming their lending rates and boosting operational efficiency.

Bank Indonesia is also holding talks with the country's lenders, the Finance Ministry and the State Enterprises Ministry "with the sole goal that lending rates will be reduced," Darmin said.

He was speaking at a seminar about sustaining economic growth at the central bank’s headquarters in Jakarta.

"Once we approve the business plan of [commercial] banks in the immediate term, we will set the benchmark for the prime lending rate for them," he added, declining to provide specifics.

Bank Indonesia will set the benchmark prime lending rate for banks by categories, such as their total assets and the type of loans they give. Banks with a certain amount of assets will receive a certain reference prime lending rate. About two thirds of Indonesia's 120 commercials banks have assets greater than Rp 10 trillion.

Juniman, an economist at Bank Maybank Indonesia in Jakarta, said on Friday that the new regulation is meant to improve the country's banking system.

"By knowing and standardizing these rates, it will be easier for Bank Indonesia when it needs to set monetary policy," he said.

Also speaking at the seminar, Harry Azhar Azis, a deputy chairman of the House of Representatives Commission XI, which oversees banking, said state-controlled lenders such as Bank Mandiri, Bank Rakyat Indonesia and Bank Negara Indonesia should take the lead in cutting their lending rates as a model for private banks to follow. State lenders, he said, account for about 35 percent of the country's bank assets.

The latest central bank data showed Indonesian borrowers pay average lending rates of 12 percent for working capital loans, 11.7 percent for investment loans and 13.4 percent for consumer loans, Darmin said last month. That compared to a 6.5 percent lending rate in Malaysia, where the policy rate is 3 percent.

Bank Mandiri, the country's largest lender by assets, set its rate at 10.5 percent for corporate loans, 12.5 percent for retail loans and 11.25 percent for housing loans.

Bank Indonesia has maintained 27 percent lending growth at commercial banks this year, Darmin said, after growth rose an estimated 24 percent last year.

Additional reporting from Investor Daily