The government has required state banks to aggressively cut lending interest rates, as most banks have widely defied calls to adjust their rates in line with the central bank’s policy to ease lending costs in a bid to boost the economy.
“If state banks can aggressively decrease their lending rates, this can be a good signal for other banks to follow suit,” said Acting Coordinating Minister for the Economy Sri Mulyani Indrawati.
The requirement for the state banks was taken during a limited Cabinet meeting Wednesday.
However, Mulyani said the government would let the banks decide on the rate cuts on their own, according to “their respective balance sheets and financial well-being”.
“They have their own capabilities to adjust their lending rates,” Mulyani said.
She added there would be no punitive measures imposed on banks that were reluctant to follow the government’s call.
“This is not a socialist or communist country,” the minister pointed out.
State banks include Bank Mandiri, the nation’s largest bank by assets; Bank Rakyat Indonesia (BRI), the second largest; Bank Negara Indonesia (BNI), the fourth largest; and Bank Tabungan Negara (BTN), the 11th largest.
On Tuesday, President Susilo Bambang Yudhoyono urged the banking industry to lower lending rates to help drive the real sector amid the global economic downturn.
A lower Bank Indonesia rate is expected to prompt banks to cut their lending rates, which will ease business costs and spur demand for loans from consumers to purchase cars, motorcycles and homes.
Around 70 percent of Indonesia’s economy is driven by domestic consumption. With a plunge in exports and foreign investment inflow, the country is now relying more on domestic consumption and state funding to fuel the economy.
BI recently cut its benchmark interest rate to 7.75 percent.
Analysts have said lending rates of less than 13 percent will keep the economy running at the targeted 4.5 percent.
BI data reveals only a slight decline in lending rates from an average 14.2 percent in the last week of December 2008 to 13.93 percent by the second week of March, while deposit rates declined from 8.75 percent to 8.32 percent.
Halim Alamsyah, BI’s director for banking research and regulation, admitted the decline was not steep, but “it shows a downward trend”.
He and other analysts believe that it will take banks three months to adjust to BI’s new rate under normal conditions.
Banks cannot immediately adjust to the new BI rate as they first need to safeguard their balance sheets and take precautionary measures to anticipate soaring nonperforming loans (NPLs) from companies unable to cope with the crisis.
Most of the banks prefer to sacrifice their lending expansion than put themselves in future uncertainty, especially over bad loan jitters.
BI recently downgraded the country’s forecast for this year’s loan growth target to around 14-16 percent, from an initial 20 percent earlier this year.
Last year, lending grew by 30.5 percent to Rp 1,353.6 trillion.
BI recently cut its benchmark interest rate to near four-year low
Mustaqim Adamrah , THE JAKARTA POST , JAKARTA | Thu, 03/12/2009 8:50 AM | Headlines