Bank Indonesia Governor Darmin Nasution vowed to be personally involved in monitoring the banking system’s efficiency to provide affordable interest rates to support economic growth amid surging inflationary pressure.
“A BI rate increase will not significantly impact lending rates and loan growth,” Darmin told the House of Representatives’ Commission XI overseeing finance and banking.
“On the other hand, a BI rate hike may be necessary to calm inflation expectations and future inflationary pressure. If there are no anticipatory steps, this could negatively affect people’s purchasing power.”
After being bombarded on Monday by questions and arguments from lawmakers for four hours on the recent BI rate hike and how it would affect the country’s economy, Darmin said the central bank would not let banks raise lending rates “just like that”, citing “steps to control” the rigid rates.
“We will summon each bank. I have told them that I would be directly involved in the process,” he told lawmakers.
He said BI would set a benchmark to compare each bank in terms of cost efficiency, and summon lender’s commissioners and directors.
“Bank A, for example, is the best at human resources costs, but perhaps not at renting costs, etc. There are at least five to six costs we would be looking at. For each we set a benchmark and rank according to net interest margin [NIM],” the former taxation director general said.
Indonesian banks lag behind peers in ASEAN with the NIM — which measures the difference between interest income and the paid interests — standing at 6 percent while other neighboring countries’ are at between 2 and 5 percent.
BI deputy governor Muliaman Hadad said the central bank would set two benchmarks, the first for 44 lenders with assets of more than Rp 10 trillion, and the second for smaller banks.
“Dialog with banks will be intensified to fix overall performance. This will ease banking supervision,” he said after the hearing.
If banks don’t lower their margins, Darmin said, the central bank would summon their executives and shareholders.
“We will explain that for the nation’s economic needs, we must work together in pushing the spread down in stages,” the governor explained.
A lower NIM means lower lending rates, which in turn would trigger more business expansion and consumption to spur economic growth in Southeast Asia’s largest economy. Indonesia’s economy is expected to expand 6.4 percent this year, with a loan growth target of 20 to 23 percent.
“When we summon bank executives [president director and commissioners] we will highlight their strengths and weaknesses and point out issues that need to be addresses or made more efficient.
We will also give them a certain time to fix their problems,” Darmin said.
A few days after the BI rate policy meeting earlier this month, the central bank summoned the 14 largest lenders in the country, who control the country’s banking system, telling them to push efforts to lower rates despite a hike in the benchmark key rate.
“They accepted our overtures, they supported my intentions. I told them the efforts may hurt, but should be done in stages. I consulted with several central bank governors in other countries,” Darmin said.