B

ank Indonesia is in talks with the Capital Market Supervisory Agency (Bapepam-LK) to regulate securities with a maturity of less than one year, acting BI governor Darmin Nasution said Friday.

These securities are expected to provide alternative funding sources for banks and increase money market efficiency by lowering the cost of funds, Darmin said.

He added BI would discuss the regulation of these securities with Bapepam-LK.

BI director of banking research and regulation Halim Alamsyah said the regulation would provide the market with more sources of liquidity.

"We are trying to make regulations that will clarify which institutions issue *the securities*, which will rate them, whether banks can buy the papers, and whether they can be used as collateral," he said.

"This is aimed at incentivizing the market. Market players have new instrument options. They can buy commercial papers, BI certificates, government bonds or stocks," he added.

Mandiri Sekuritas economist Destry Damayanti said the regulation was necessary as short-term securities were not currently supervised.

"We need the regulation. We don't know if the securities may create a bubble," she said. A bubble is a market condition created through excessive buying that leads to a speculative run-up in prices.

She said trading in short-term securities increased in 2008 when the financial sector suffered tight liquidity. "We don't yet know the size *of the trading* because it's not regulated," she added.

BI has encouraged banks to be more efficient to ensure they can perform their intermediary functions well - lending money and collecting funds, rather than making as much profit as possible.

Analysts said high lending rates discouraged borrowers, causing lending to remain slow at only 4.2 percent between January and October this year. Another factor for slow lending was that businesses were waiting to expand amid the global economic crisis.

Darmin said banks were not yet efficient as indicated by the high spread between lending and deposit rates of more than 5 percent at Indonesia's top banks. "In neighboring countries the spread is between 3 percent and 3.5 percent," he said.