Bank Indonesia to Maintain Pressure on Big Lenders to Lower Rates
Nusa Dua. Bank Indonesia will continue to encourage the nation’s big commercial banks to cut their prime lending rates as part of its effort to spur borrowing and in turn, boost growth in Southeast Asia’s largest economy.
BI governor Darmin Nasution said in Bali on Thursday that other Indonesian banks should follow the steps taken by Bank Mandiri in cutting lending rates. The central bank cut its key interest rate last month as inflation eased, to help ensure economic growth amid financial turmoil in the euro zone and the US.
“It is good if there is a lender taking the initiative to cut its lending rate on a voluntary basis. And it would be better if other banks follow,’’ Darmin said on the sidelines of a banking seminar co-organized by the World Bank.
Several large banks including Bank Mandiri, the country’s largest lender by assets, and Bank Central Asia, the second biggest, announced rate cuts early this week. Bank Mandiri reduced the prime lending by half a percentage point, across the board, which became effective on Thursday.
That puts its rate for retail loans at 12 percent, corporate loans at 10 percent and mortgage loans at 10.75 percent.
Local media reported that Bank Central Asia, the country’s biggest lender by market value, recently cut the rate on its retail loans by 50 basis points to 10.50 percent from 11 percent.
Darmin said that BI would consult with banks that have not cut their rates.
“We’ll see and study why banks have not cut theirs. It is not an order, but we will ask them to discuss and improve efficiency without hurting their profitability,’’ Darmin said.
He said the central bank will assess the lending practices of banks going forward.
“We will analyze their business plans and hope there will some adjustment in the lending rate,’’ Darmin said.
The central bank has been coaxing banks to announce their prime lending rates since early this year. After almost nine months, few have paid heed.
On March 31, the central bank announced that it would require banks with assets of more than Rp 10 trillion ($1.1 billion) to make publicly available their prime lending rates. The move was aimed at improving efficiency at banks, which in turn “would reduce the rate they charge on customers.”
Prime lending rates are the rates charged by banks to corporations, retailers and consumers. The rates take into account the cost of funds, overhead costs and profit margins. The final decision on the rate depends on individual customers’ risk profiles.
BI, which cut its policy rate by half a percentage point to 6 percent in early November, may further reduce the benchmark when it meets on Thursday to boost economic growth. The central bank has cut its forecast on Indonesia’s economic growth to 6.3 percent next year from a previous estimate of 6.7 percent. It forecast growth at 6.5 percent this year after expanding 6.1 percent last year.
Lending at Indonesia’s 120 commercial banks is forecast to grow by 23 percent to 24 percent next year from an estimate of 24 percent to 25 percent this year, according to Bank Indonesia.