The cost of funds has declined steadily along with the decrease in time deposit rates after Bank Indonesia gradually eased its monetary stance in line with low inflation. However, businesses are still complaining about persistently high interest rates and an acute lack
of credit.
Corporate borrowers claim the time lag before the decrease in the Bank transferred to credit interest rate was too long.
During the first four months alone, the interest rate on one-month deposits decreased by more than 80 basis points to 7.85 percent following the lowering of the BI rate by 125 basis points.
Yet lending rates (for working capital credits) were down by only about 40 basis points to 13.80 percent.
More worrisome is the extremely slow pace of new lending.
In fact the latest data at Bank Indonesia shows that credits outstanding (cumulatively) as of March remained rather flat at Rp 1,286 trillion (US$110 billion) compared to Rp 1,285 trillion at the end of December, while banks’ placements in government bonds and Bank Indonesia’s certificates remained quite large, sometimes reaching as high as one third of all third-party funds in the banking industry.
Without concerted action to restore lending, we could face the prospect of a much sharper downturn, irrespective of the fiscal stimulus.
The problem is that faced with increasingly high business risks that could sharply increase bad credit, banks have been pulling back on lending to protect themselves against the possibility of depreciating levels of non-performing loans. If this trend continues, the drying up of credit could cause severe damage to consumer confidence and slow down economic activity.
We could leave this problem to market forces and hope things will eventually return to normal once the economy recovers and business risk becomes reasonable.
State or government-directed lending should be avoided as this market intervention could undermine risk management at banks. But the current condition is abnormal as our economy is still vulnerable to the fallout from the global financial crisis and economic recession.
Therefore we think the situation warrants some sort of government intervention at least to prod the four state banks that still account for some 40 percent of total banking assets, to decrease their credit interest rates and expand lending.
The government, as the controlling shareholder, should examine the cost structure of state banks to ascertain the main factors that stand in the way of lower lending rates and significant credit expansion.
The minister of state companies, if necessary, should allow state bank managements to change their business plans and accordingly lower their profit margin to enable them to decrease their credit interest rates and accelerate the pace of new lending.
We believe that if state banks can aggressively lower their lending rates, this can serve as a strong market signal for other banks to follow suit, otherwise they may lose their prime customers.
| 
|
|
|
|
|
|
|