Money in the bank: A man uses an ATM machine in Jakarta. The central bank said the banking sector remained fairly healthy as of May, with its relatively high capital adequacy ratio (CAR) and the average rate for Non Performing Loans (NPLs) still holding below the central bank’s maximum tolerance of 5 percent. JP/Ricky Yudhistira
While the central bank has cut its key interest rate by 275 basis points since November, the commercial banks have yet to match BI aggressiveness in cutting lending rates due in part to still-tight liquidity.
Last week Bank Indonesia (BI) cut its rate for the eighth straight month to 6.75 percent in a bid to accelerate bank lending, which should spur growth, amid the already sound local macroeconomic conditions.
But banks have not been as aggressive as BI in cutting their lending rates, with estimated cuts of only about 1 percent on average since the beginning of this year, with lending rates now hovering at about 9 percent in large banks and about 12 percent in foreign and smaller banks.
“There has yet to be a significant cut in lending rates due to the uncertain state of liquidity,” Aviliani, an economist at the Institute for Development of Economics and Finance (Indef) who is also an independent commissioner at state-run lender Bank Rakyat Indonesia (BRI), said on Saturday.
“There are still big risks in liquidity. Banks are afraid to lose depositors,” she said. “Depositors here still focus on higher rates.”
Aviliani predicted banks might cut lending rates after the presidential election, but not by much. About a 50 basis points cut might be feasible, in the circumstances.
Bank Danamon chief economist Anton Gunawan said banks were being careful in cutting their lending rates so as to maintain liquidity and a strong capital base while facing a higher threat of rising non-performing loans (NPLs) because of the economic downturn.
“Two challenges for the banks are they have to maintain liquidity, and in relation to capital, some of the banks are tight on capital,” he said.
He added that big depositors requested high deposit rates, meaning that banks could not cut lending interest rates by much on fear of depleting capital.
With still-high lending rates, Aviliani estimated bank lending would not rise significantly in the second half this year, although 15 percent overall growth in bank lending for this year — as targeted by the central bank — was still feasible.
“Credits may go to the mining sector, like in the first half, and also to the electricity, gas and water sectors,” said Anton.
As of April, lending reached Rp 1,780.9 trillion (US$174.73 billion), increasing from Rp 1,745.6 trillion in January, according to data from BI.
Still, this year’s growth target is way below the 30 percent growth in bank lending booked last year, which helped stimulate the economy to grow by 6.1 percent.
This year, in line with a slower expansion in lending, the economy is forecast to grow by between 4 and 4.5 percent, backed by consumer spending and stimulus measures.
Banks have been careful in channeling loans, said acting BI governor Miranda S. Goeltom, which “is good, meaning they are running risk management well”.
Aviliani said liquidity might ease if the proposed bill on the financial system safety net (JPSK) was endorsed in the coming months by the House of Representatives.
“The bill will eventually allow BI to help out by providing liquidity to banks with tight liquidity when interbank loans remain limited.”
The central bank has said that overall, the banking sector fared quite well in the first half of the year, despite the continuing impacts of the global credit crunch.
The banking sector remained fairly robust as of May, as seen from the relatively high capital adequacy ratio (CAR) while average rate for NPLs was still below the central bank’s maximum tolerance of 5 percent.
