Analysts see the central bank’s recent move to change the frequency of its bill auctions may boost bank lending, but success will depend on both banks and businesses.
Bank Indonesia (BI) last week announced it would change BI’s bill auction from a weekly to a monthly basis, and focus on the three-month and six-month bills, to be fully implemented in June, following a transition period starting March 10.
“It will encourage banks to be more active in the interbank market or in the money market. But in relation to loans, it will depend on [loan] demand too,” Bank Danamon Chief Economist Anton
Gunawan said Monday, adding that the amount of undisbursed loans were quite high last year.
Undisbursed loans — committed loans but not taken up by borrowers — rose 30.7 percent to
Rp 323.7 trillion (US$35.28 billion) at the end of 2009, from Rp 247.7 trillion in the previous year, according to BI.
Last year bank loans rose about 10 percent to Rp 1,437.9 trillion from Rp 1,307.7 trillion in 2008, BI said. It expects lending growth of between 17 and 20 percent this year.
Anton also said BI should improve its debtor information system, which could be accessed easily by banks to map the profile of debtors in minimizing lending risks.
BI Deputy Governor Hartadi A. Sarwono said the central bank aims to encourage banks to put funds in BI’s three-month and six month bills. “Therefore short-term bank funds of below one month can be used to increase interbank transactions,” he said.
Citi analyst Johanna Chua said BI’s move would improve the transmission of its monetary policy and boost bank lending.
Anton said in the meantime banks would likely shift their funds to BI’s daily deposit facility called FASBI, which might cause a “hidden policy rate cut”.
“More funds in FASBI may cause a lower FASBI rate,” he said.
The FASBI rate now stands at 6 percent, below BI’s one-month bill rate of 6.4 percent. BI’s key policy rate has been kept at 6.5 percent for the seventh straight month.
The worst case scenario could happen if banks could not see the prospect of loan growth in the near term, which would make them place funds in BI’s three-month and six-month bills rather then FASBI, said Anton. This could lead to a reduction in interbank loans, causing banks to raise deposit rates.
“Therefore short-term bank funds of below one month can be used to increase interbank transactions."
Higher deposit rates would prompt banks to raise lending rates discouraging businesses to borrow.
He also suspected that the change in frequency of BI’s bill auction might be related to BI’s plan to change the reserve requirements — the level of funds banks are required to keep with BI — which would be linked to the banks’ loan-to-deposit ratio (LDR).
BI said at the 2010 Bankers’ Dinner in January that the higher a bank’s LDR, the lower the reserve requirement would be.
Acting BI Governor Darmin Nasution said last year that BI and the Capital Market and Financial Institutions Supervisory Agency plan to regulate short-term money market instruments was intended to provide more liquidity to the banks.
Many analysts believe that the one-month bill has become an ideal instrument whereby commercial banks can keep their idle funds but still giving them a basic return, albeit not so much as from lending.
By removing the one-month bill, the central bank is gently pressuring the commercial banks to find new borrowers for their under-used funds, they said.
They hope that these changes in monetary policy could result in a lower lending rate and an increase in loan disbursements, especially to productive sectors,. so as to stimulate economic growth.
