The Deposit Insurance Corporation (LPS) has decided to raise its guaranteed interest rate for rupiah deposits, higher than Bank Indonesia'€™s (BI) benchmark interest rate, although no further monetary tightening has been taken by the central bank.

The LPS jacked up its rates by 25 basis points for commercial banks and secondary banks (BPR) to 7.75 percent and 10.25 percent, respectively, according to an announcement made on Tuesday evening.

The new rates are valid until Sept. 14 and are currently higher than the 7.5 percent benchmark interest rate set by BI.

As for foreign-denominated deposits, the guaranteed rate remains unchanged at 1.5 percent.

LPS executive chairman Kartika '€œTiko'€ Wirjoatmodjo said the agency made the decision after examining the deposit rate trends that had occurred within the banking industry.

'€œNumerous banks, especially those under the BUKU III and BUKU II categories, are still increasing their interest rates. The increases are quite sharp due to tight competition to obtain liquidity,'€ he said in a press conference on Wednesday.

BUKU III banks are categorized as those having core capital of between Rp 5 trillion (US$436.80 million) and Rp 30 trillion, while BUKU II banks are lenders with core capital of between Rp 1 trillion and Rp 5 trillion.

Some of the banks'€™ interest rates, Tiko added, had even touched 10.25 to 10.5 percent since the beginning of the year.

'€œWe need to raise our rates to be able to cover at least 90 percent of total banking accounts, although in terms of total deposit value, we can only cover around 51 percent at the moment,'€ he said.

According to LPS data, its rates were higher than BI'€™s during the January 2011 to March 2012 period as well.

The data also showed that as of February 2014, the total amount of deposits stood at Rp 3.65 quadrillion, generated from 150.74 million accounts. The LPS currently insures customers'€™ deposits up to Rp 2 billion per person.

Tiko acknowledged that the higher LPS rate would potentially drive banks to increase their rates again as customers would prefer deposit rates that were close to LPS'€™. '€œHowever, we are calling on banks to be prudent in setting their rates because it will boost their fund costs,'€ he said.

Meanwhile, at the same press conference, the LPS announced that 11 potential investors had made it through the pre-qualification stage in the auction of Bank Mutiara, formerly known as Bank Century.

LPS divestment head Poltak L. Tobing said the investors had handed in the required documentation and could now submit their preliminary bids through the June 5 deadline.

Of the 11 potential buyers, four come from Indonesia, while some of the others hail from Hong Kong, Japan, Malaysia and Singapore.

Three of them are banks, including state-owned lender Bank Rakyat Indonesia (BRI), seven are non-banking financial institutions and one is a consortium.

The LPS is set to announce the preliminary-bid results after June 12.

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