TheJakartaPost
Please Update your browser
Your browser is out of date, and may not be compatible with our website. A list of the most popular web browsers can be found below.
Just click on the icons to get to the download page.
Banks compete for funds
It came as a surprise for Sondang, a 56-year-old homemaker, that a bank as renowned as Bank Negara Indonesia (BNI) would grant her wish
Change Size
I
t came as a surprise for Sondang, a 56-year-old homemaker, that a bank as renowned as Bank Negara Indonesia (BNI) would grant her wish.
Her wish was simple and one shared widely by others who placed their excess money in banks: she wanted a higher deposit rate.
The mother of three was about to transfer her time deposit (TD) to Bank Mandiri, which proposed a higher interest rate of 9.75 percent, compared with the 6.75 percent offered by BNI.
'But BNI said it would offer the same rate as Mandiri as long as I kept my funds there. So I settled for BNI,' she said enthusiastically.
Sondang's experience is a real-life depiction of how banks compete for customers' funds as the cash supply lessens in the economy.
Bank Indonesia (BI) decided last year to increase its benchmark interest rate by 175 basis points to 7.5 percent to put the brakes on excessive economic growth.
Following the hike, however, domestic liquidity ' represented by third-party funds (DPK) that include deposits and savings ' began to 'dry up' and lenders went all out to secure customers' funds, including by offering high TD rates.
Some rates are even well above the 7.75 percent guideline set by the Deposit Insurance Corporation (LPS).
To solve the matter, the Financial Services Authority (OJK) says it is working to redefine the liquidity indicator now outlined by the loan-to-deposit ratio (LDR).
According to OJK chairman Muliaman D. Hadad, the redefinition will enable lenders to raise funds from other sources than customers, helping to ease pressure
on liquidity.
'I receive many complaints from bankers who say they have sufficient pools of funds [but they] are not recognized by the LDR because they are not generated from customers' deposits,' he said recently.
The LDR measures the amount of loans a bank has versus the amount of its DPK, consisting only of
savings, demand deposits and time deposits.
The higher the ratio, the more a bank is seen as dependent on customers' funds, which may limit its ability to disburse loans due to tight liquidity.
Average nationwide LDR stood at 90.3 percent by the end of May, nearing the healthy level set by BI at 92 percent, data from the OJK showed.
The 'loan-to-funding' ratio (LFR), which recognizes debt papers and securities as a bank's liquidity indicator, could be used to replace the LDR, said Nelson Tampubolon, OJK commissioner on banking supervision.
A part of the new banking bill draft will also cement banks' capacity to issue short-term securities, such as negotiable certificates of deposit (NCD).
BNI treasury head Bimo Notowidigdo said customers' deposits could not be the sole source of funding, because banks should also be given the opportunity to tap into wholesale markets to manage their funding profile and costs of funds.
'If the system-wide LDR continues to creep up, at some point banks will have to stop lending since they can't raise any more customer deposits. So how can Indonesia expect to spur economic growth without bank loans?' he wrote in an email.
Meanwhile, Bank Mandiri president director Budi Gunadi Sadikin was lukewarm on the plan, saying that recognizing the LFR would introduce new risks to the industry.
'The new ratio can help ease liquidity pressure, but we have to pay special attention to maturity, cross currency and interest rate risks, which we don't see within customers' deposits at the moment,'
he said.
