Banks are expected to cut the interest rate spread to lower lending rates in a bid to spur economic growth, Bank Indonesia Acting Governor Darmin Nasution said Friday.
The spread between deposit rates and lending rates should be cut to the same level as in the first quarter of 2008, Darmin said, declining to name an exact figure.
BI's benchmark interest rate in March 2008 stood at 8 percent, compared to the current level of 6.5 percent. While the BI rate is lower, lending rates remain high amid tight liquidity suffered by banks.
To lower lending rates, 14 major banks agreed on Aug. 20 to cut their deposit rates to 150 basis points above the BI rate within three months. After three months they will further cut the rates down to 50 basis points above the BI rate.
"We have evaluated the progress in these two months,. There is a decline in deposit rates, although some are not as fast as expected," Darmin said.
Lower deposit rates will cut banks' cost of funds, enabling them to cut lending rates.
"We've talked about the *interest rate* spread, we've asked the banks to make the spread no higher than that during the pre-crisis time," he said.
Again, he declined to name the spread considered enough for banks to support the economy, saying different banks had different portfolios.
"Every bank is different. There are banks focusing on retail activities, whose portfolios are different from those focusing on corporate activities," Darmin said. BI has the data on the interest rate spread that will be used to supervise the rate cut, he added. Lending will likely grow below expectation this year, analysts say. BI initially predicted lending growth at 15 percent, down from 30 percent in 2008, as the global downturn caused businesses to halt expansions.
But now lending is expected to grow by no more than 10 percent as businesses wait before making new investments, BI said. Bank Danamon economist Helmi Arman said lending growth could reach 12 percent this year.
The latest BI survey - done quarterly on 43 commercial banks in Jakarta, whose combined loans represent 80 percent of total loans of all commercial banks nationally - shows the manufacturing sector and the property sector steering clear of banks. The survey shows lending rates may decline to 14.81 percent on average in the last quarter this year, slightly down from 15.13 percent in the third quarter.
Analysts say BI may start raising its benchmark rate in the first half of 2010 as the economy recovers, which may prompt banks to raise deposit rates, and then lending rates.
