TheJakartaPost
Please Update your browser
Your browser is out of date, and may not be compatible with our website. A list of the most popular web browsers can be found below.
Just click on the icons to get to the download page.
SBY urges banks to cut interest rates
President Susilo Bambang Yudhoyono urged the banking industry to drastically lower interest rates for lending Tuesday to propel the sluggish economy
Change text size
Gift Premium Articles
to Anyone
Share the best of The Jakarta Post with friends, family, or colleagues. As a subscriber, you can gift 3 to 5 articles each month that anyone can read—no subscription needed!
President Susilo Bambang Yudhoyono urged the banking industry to drastically lower interest rates for lending Tuesday to propel the sluggish economy.
The request comes after banks widely refused to adjust their rates following Bank Indonesia's series of benchmark interest rate cuts that almost hit a four-year low of 7.75 percent recently.
Yudhoyono said although he understood it was not easy for banks to just cut the rates due to the “prudential” principle, banks would have to start “looking outward” during these hard times to help the business sector weather the impact of the deepening global economic crisis.
“I know there is prudence. I know you (banks) need time to improve your balance sheet. But don’t just look inward. Let's also look outward,” said Yudhoyono, while delivering his speech before members of the Indonesian Young Entrepreneurs Association Hipmi).
“You [banks] should understand the real intention of this [BI] policy and immediately adjust to it because it will bring benefits to all of us.”
Yudhoyono will hold a limited Cabinet meeting Wednesday to discuss the issue.
A lower BI rate may prompt banks to cut their lending rates, which will ease business costs and spur loan demand from consumers to purchase cars, motorcycles and houses. Around 70 percent of Indonesia's economy is driven by consumption.
Hipmi chairman Erwin Aksa said lower rates would provide “economic justice” not only to businesses, but also to their employees by helping the businesses expand and survive during this globally tight time.
“We appreciate the government’s fiscal stimulus package and BI’s monetary policy to cut their rates. However we would be more grateful if the banking industry quickly responded to the rate cut,” Erwin said.
BI director for banking research and regulation Halim Alamsyah said lending and deposit rates had declined 5 percentage points in the past weeks.
BI data reveals lending rates slid on average from 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.
“The decline isn’t steep, but it shows a downward trend,” he said, adding banks would need two to three months to adjust to BI’s new rate under normal conditions.
“Every bank is different. We need to see the structure or composition of their third-party funds, and balance between loans and third party funds. Some banks are quick in cutting the rates and some are not,” he said. Analysts have said the economy will run if lending rates are kept at below 13 percent.
Bank lending rates on average
Type of banks 4th week 2nd week
Dec. 2008 March 2009
1. State-run banks 12.95% 12.72%
2. Private banks 15.37% 15.53%
3. Regional banks 11.86% 11.94%
4. Foreign banks 12.97% 12.23%
5. Joint-venture banks 14.49% 13.05%
Bank deposit rates on average
Type of banks 4th week 2nd week
Dec. 2008 March 2009
1. State-run banks 7.5% 7.2%
2. Private banks 9.25% 8.98%
3. Regional banks 8.26% 7.89%
4. Foreign banks 7.71% 6.2%
5. Joint-venture banks ---- ---
Source: Bank Indonesia
