State-run lender Bank Negara Indonesia has invited 26 local lenders to engage in a Mini Master Repurchase Agreement (Mini MRA) to help them perform interbank borrowing with less difficulty and to make the rupiah market more liquid.

BNI signed a Mini MRA with the 26 lenders on Thursday, the agreement of which will provide access for lenders willing to conduct repo transactions with the major bank and among themselves.

BNI president director Gatot M. Suwondo said the agreement was a follow-up to the bank'€™s similar agreement with the country'€™s other seven top-tier lenders late last year.

'€œBNI wants to facilitate local banks to engage in an interbank repo agreement because in order to boost liquidity in the country'€™s money market, it won'€™t be enough if only BNI and pioneer banks agree to carry out repo transactions,'€ he said.

Among lenders that inked the Mini MRA deal with BNI include Bank Tabungan Negara, Bank CIMB Niaga, Bank Danamon, Bank International Indonesia, Bank Mega, Bank Permata, Bank UOB Indonesia, Bank Artha Graha and Bank Sinarmas.

Gatot said that the country'€™s money market had long been shadowed by uneven liquidity access between banks that further resulted in tight competition in garnering third-party funds.

'€œWith this collaboration, we hope that existing banks can turn to more secured repo transactions as an alternative to the usual method, which is actually less secure,'€ he said.

The complexity and different standards of mini repo had previously discouraged banks from using repo agreements to acquire funds and instead they turned to the usual interbank money market facility (PUAB), which offers higher risks compared to MRAs to compensate for a lack of collateral requirements.

The move to simplify interbank borrowing with MRA procedures commenced last December when Bank Indonesia (BI) and the country'€™s eight major lenders '€” BNI, Bank Mandiri, Bank Rakyat Indonesia (BRI), Bank Central Asia (BCA), Panin Bank, Bank Bukopin, Bank Jabar Banten (BJB) and Bank DKI '€” inked an MRA deal to provide them with higher liquidity access into the rupiah market.

On Thursday, the central bank signed a repurchase agreement with 38 more banks, making it 46 lenders in total that have agreed to carry out MRA procedures to boost their liquidity.

The agreement stipulates that only government bonds (SBN), BI certificates (SBI) and BI deposit certificates (SDBI) can be accepted as collateral and that Indonesian law will be used as legal references in any disputes.

Bank officials previously reportedly said that the repurchase agreement would hopefully help dismiss that notion and encourage other banks to join as the costs were estimated to be lower than those incurred under the PUAB.

The PUAB currently sets the interest rate at around 7.75 percent while the repo rate stood at 7.3 percent.

Edi Susianto, BI'€™s director of monetary management who was present at Friday'€™s signing event, applauded BNI'€™s move to engage local banks, adding that the central bank had aimed at boost liquidity in the country'€™s money market with the Mini MRA.

'€œTo help boost liquidity access, we need commitments from not only the OJK [the Financial Service Authority] or one or two banks. We need more lenders involved and actual transactions to hopefully disintegrate market segmentation,'€ he said.

Data from BI shows that average daily repo transactions have gone up by more than fivefold to Rp 740 billion (US$62 million) as of mid-February since the eight pioneer lenders consented on the Mini MRA agreement. For comparison, daily repo transactions stood at an average Rp 146 billion throughout last year.

As of Thursday, the country'€™s repo transactions hit Rp 27 trillion year-to-date.

Popular

RI, Australia strengthen partnership on taxing crypto assets

Analysis: Indonesia denies normalization with Israel to enter OECD

Citroen to produce electric cars in Indonesia