B

anks have welcomed a new central bank policy that allows them to expand their sources of deposits not only from customers but also from funds that are generated from the capital market, as it can improve their liquidity and in turn their intermediary function for customers.

The new policy, introduced last week on the sidelines of a Bank Indonesia (BI) benchmark interest rate announcement, will allow securities issued by banks as one of the components of deposits to expand funding sources for the lenders, BI Governor Agus Martowardojo said.

The move, he said, was part of the central bank'€™s macro-prudential measures to deepen the financial market.

Prior to the announcement, only customers'€™ savings, time deposits and demand deposits were categorized as components of deposits. The three, compared to the total amount of loans distributed by banks, make up the loan-to-deposit ratio (LDR).

High LDRs mean banks have tight liquidity while low LDRs mean banks do not channel enough loans as their intermediary function.

According to BI deputy governor Halim Alamsyah, medium term note and mortgage-backed securities are among the securities that banks can issue to raise funding.

Bank Danamon president director Henry Ho said '€œmodified'€ LDRs to include issued securities were welcome news for the industry because it would help banks have a new source of funding other than relying on customer deposits.

'€œIt will definitely improve liquidity in the system and also bring the overall cost of funds down. This should see a lowering of lending rates, which will benefit borrowers,'€ he said in an email.

Banking statistics show that the nationwide LDR stood at 88.9 percent by September, reflecting an ease in liquidity pressure since the beginning of the year.

In January, the LDR stood at 90.4 percent and the ratio exceeded the safe level when it reached its peak at 92.2 percent in July, showing that banks went all out to secure the funds needed to finance their credit commitments.

Danamon'€™s own data revealed that the private lender'€™s LDR stayed at 91.3 percent as of September. However, its loan-to-funding ratio (LFR) only amounted to 85.9 percent.

In its LFR calculation, Danamon included reserves with BI, cash in vault and held-to-maturity (HTM) bonds as components of loans, as well as net borrowing, long-term finance (LTF) and net capital as components of funding.

Meanwhile, PermataBank acting president director Roy Arman Arfandy said the banking industry would see liquidity escalate following the introduction of the new funding option.

'€œWe will be able to push down the LDR and improve the banking industry'€™s intermediary function,'€ he said.

He said that Permata '€” the LDR of which amounted to 88 percent '€”had a plan to issue a subordinated de bt to improve its capital, but it would review its strategy to be in line with the new policy.

Separately, Bank Mandiri president director Budi Gunadi Sadikin also welcomed the new funding option, but warned that banks must be prudent when planning a securities issuance, citing differences between the nature of securities and that of customer deposits.

'€œCustomer deposits are more stable compared to securities. If we plan to issue Rp 1 trillion [US$82.23 million] bonds, we must make sure that the market is up for it and that we have sufficient buyers to purchase the debt papers,'€ he said.