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Now, the ball is in OJK's court
Eventually, the policy synergy between the OJK and BI is the primary key to resolving the high lending interest rate problem in Indonesia.
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This picture shows the front of the Financial Services Authority (OJK) building. The OJK will support Bank Indonesia's efforts to reduce the interest rate over the year. (Kontan /-)
T
he long election process of the Financial Services Authority’s (OJK) board of commissioners has ended. The chairman of the OJK and six elected members along with two ex officio from Bank Indonesia (BI) and the Finance Ministry, respectively, will be inaugurated by the President in July to manage the OJK for the next five years.
The OJK’s successors, headed by Wimboh Santoso, are rather fortunate to inherit a solid foundation in carrying out regulatory, supervision and protection functions on financial services institutions in the country. But it must be admitted also that much work in the financial sector still needs to be done.
The greatest amount of work revolves around the banking sector. The national financial architecture is dominated by the banking industry. Moreover, the source of financing for the real sector mainly comes from banks, reaching 70 percent. By itself, it explains how heavy a burden the banking sector bears.
More specifically, the main obstacle is to realize the target of single digit lending rates after it was missed last year. This expectation is reasonable because it was the concern of Wimboh when he was at BI with then BI governor Darmin Nasution (now coordinating economic affairs minister).
By the end of April, the average bank credit rate was at the level of 11.92 percent even though it dropped 93 basis points (bps) from a year ago.
Indonesia’s lending interest rate is the highest among ASEAN countries, such as in Thailand (6.5 percent), the Philippines (5.5 percent), Singapore (5 percent) and Malaysia (4.5 percent).
Overall, the lending interest rate in Indonesia is almost twice than that in the peer region. In fact, free competition in the era of the ASEAN Economic Community for the banking sector will be enacted in 2020.
