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Banks agree to cut borrowing rates to boost growth: Minister
The banks will reduce lending rates gradually to help expansion of the real sector in support of the 5
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he banks will reduce lending rates gradually to help expansion of the real sector in support of the 5.5 percent economic growth expected by the government this year, officials said.
"Bank Indonesia *BI* has a program to cut lending rates. It will be done gradually and competitively without causing banks losses this year," Industry Minister MS Hidayat said Wednesday after meeting BI and state-owned banks at the BI head office.
But he could not specify how much the fall in rates might be.
Hidayat said he made a presentation to BI and the banks on growth projections for industry in the next five years.
"Ahead we want to focus on value-added industries and labor-intensive industries with the small- and medium-scale businesses. We are all now calculating how much is the ideal spread so that the business community can compete against imported goods," he said.
Net interest income - the spread between lending and deposit rates - of banks in 2009 was 5.56 percent, almost unchanged from the 5.66 percent in 2008, BI data shows. In contrast, BI said banks in some neighboring countries had a net interest income of only 3 percent.
Acting BI Governor Darmin Nasution said the central bank would scrutinize banks' cost of funds to determine which cost components could be decreased to push lending rates down.
"We agree there's a need to reduce lending rates. But we can't say that the rates would go down immediately. Clearly there are efforts *being made* with the State-Owned Enterprises Ministry to drive lending rates down," he said.
Last year average lending rates hovered above 12 percent, according to BI. However consumer loans in rupiah carried an average interest rate of 15.81 percent, working capital loans were at 13.27 percent and investment loans at 12.55 percent.
Analysts have said that many banks still prefer channeling their loans to consumers, car and house financing rather than to the industrial sector so as to reduce default risks. Giving loans to the industrial sector still carry relatively higher risks because many manufacturers are still suffering a decline in their businesses despite an improvement in the country's economy, they said.
The manufacturing sector and the trade, restaurants and hotels sector, which received most loans last year, had the highest non-performing loans (NPLs). The manufacturing sector had an average rate of 5 percent of NPLs with bad loans of Rp 12.41 trillion (US$1.34 billion); while the trade, restaurants and hotels sector experienced a 4 percent rate of NPLs with bad loans of Rp 12.25 trillion.
Bank Indonesia expects credit growth from the nation's lenders of between 17 percent and 20 percent this year, compared with 10.7 percent in 2009.
Indonesia's $514 billion economy, which grew 4.5 percent last year, is forecast to expand 5.2 percent in 2010 and 6 percent next year, Darmin said.
Bank Indonesia on Feb. 4 kept its benchmark interest rate unchanged for a sixth straight month, judging that inflation isn't yet enough of a risk to warrant higher borrow-ing costs.
