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OJK considers imposing cap on lending rates

The Financial Services Authority (OJK) is mulling over the possibility of setting a cap on lending rates, a move welcomed by businesspeople, who deem that the limitation will create a “friendlier” rate for the business environment

Satria Sambijantoro and Tassia Sipahutar (The Jakarta Post)
Jakarta
Thu, October 2, 2014

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OJK considers imposing cap on lending rates

T

he Financial Services Authority (OJK) is mulling over the possibility of setting a cap on lending rates, a move welcomed by businesspeople, who deem that the limitation will create a '€œfriendlier'€ rate for the business environment.

OJK commissioner for banking supervision Nelson Tampubolon said in Jakarta on Wednesday the regulator is considering to put a limit on the lending rates to help spur economic growth.

'€œWe recently set a cap on micro lending. We are thinking of doing the same for other lending segments because loans have a direct impact on economic activities,'€ he said.

The financial service watchdog would try to bring the current rates to a more reasonable level, he said, but he provided no details on the future cap or the implementation schedule.

Nelson also attributed the recent cap on time deposit (TD) interest rate as part of its effort to bring down lending rates. '€œBy reducing the TD rate, hopefully banks can reduce their lending rates as well. That will open the way for businesses to access credit,'€ he added.

Data from July banking statistics, jointly published every month by the OJK and Bank Indonesia (BI), show that the rates for investment and working capital loans grew significantly after the central bank went on a tightening cycle last year, during which BI jacked up its benchmark interest rate by 175 basis points to 7.5 percent.

It prompted the rate for rupiah-denominated investment loans to climb by a total of 1.04 percentage points to 12.72 percent in July from a year ago, while the rate for rupiah-denominated working loans surged by 1.03 percentage points to 12.32 percent during the same period.

Sofjan Wanandi, chairman of the Indonesian Employers Association (Apindo), said that the cap would prevent banks from setting the rates arbitrarily, which had made expansion plans more costly for businesses.

According to Indonesian Chamber of Commerce and Industry (Kadin) chairman Suryo Bambang Sulisto, banks have no reason to set high interest rates for lending, now that the OJK has put a limit on the deposit rates.

Meanwhile, Budi Gunadi Sadikin, president director of Indonesia'€™s largest lender Bank Mandiri, argued that a low inflation rate was essential to enable banks to slash the lending rate.

'€œWhat if we adjust the lending rate and then the government decides to increase the subsidized fuel price? The inflation rate will climb again and we may have to set a higher deposit rate to prevent funds from fleeing,'€ he said.

Separately, Ari Kuncoro, University of Indonesia'€™s School of Economics dean, said that OJK'€™s capping plan might not be effective without clear punishment mechanisms.

'€œThe one possessing such mechanisms is BI, not OJK,'€ he said, adding that the central bank could deny the lenders access to instruments, such as an overnight lending facility, if they fail to comply to a
regulation. (gda)

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