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BI changes Jibor reference, nine banks removed

Bank Indonesia (BI) has introduced a new regulation for the Jakarta interbank offered rate (Jibor), aiming to boost the rate’s credibility among local banks so that it can be used as a benchmark for more financial transactions

Satria Sambijantoro (The Jakarta Post)
Jakarta
Thu, April 2, 2015

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BI changes Jibor reference, nine banks removed

B

ank Indonesia (BI) has introduced a new regulation for the Jakarta interbank offered rate (Jibor), aiming to boost the rate'€™s credibility among local banks so that it can be used as a benchmark for more financial transactions.

A central bank regulation issued on Tuesday stipulated there would be fewer banks that could contribute to the Jibor quoting system, which is an indicative rate used for money market transactions that influences liquidity in the economy.

The number of banks that could submit their quotes for the Jibor would be trimmed from the existing 30 to 21, with mid-scale banks such as Bank BJB, Bank Bukopin, Bank Mega, Bank Victoria and Rabobank being eliminated from the list.

Major lenders such as Bank Central Asia, Bank Mandiri, Bank Rakyat Indonesia, Citibank, HSBC Bank and JPMorgan Chase retained their positions as the submitters of the Jibor.

'€œThe previous Jibor could not be used as a good reference for interest rates because the banks [included on the list] were too diverse,'€ BI senior deputy governor Mirza Adityaswara told a press briefing on Tuesday.

Mirza argued that, when the Jibor had become '€œmore credible'€, local firms could use the rate for their financial transactions, such as a bank'€™s lending or deposit facilities, or other derivative transactions from interest-rate swaps to hedging.

'€œToday, the Jibor cannot be used for such purposes because the rate there is not reflective of the real condition in the market,'€ he said.

Previously, there has been a wide gap of the Jibor that is submitted by Indonesian banks, mainly because of the difference in their liquidity conditions.

BI data showed that banks are facing tighter liquidity at the moment, as over the past two days the average overnight Jibor '€” a rate that a bank offers for lending money to other banks overnight '€” stood at 6.8 percent, increased from 5.6 percent earlier this month.

On Tuesday, the lowest overnight Jibor submitted came from Bank BJB with 6.25 percent, while the highest was from HSBC Bank with 7.15 percent, central bank data showed.

The new BI regulation stipulates that the 21 banks which submitted their Jibor quotes must have a commitment to price and liquidity, meaning they must give an assurance of sufficient liquidity when other banks want to tap their rate for cash.

BI also eliminated the Jibor quotation for the US dollar, arguing that the instrument had rarely been used among local banks and moreover was prone to illegal fraud practices.

'€œEliminating the reference rate in foreign currency has been international best practice, as the rate has been a subject of various rigging cases around the world,'€ said Nanang Hendarsyah, a BI director who acts as the deputy head of the central bank'€™s task force for financial deepening.

One of the world'€™s most noteworthy rate-rigging scandals occurred in the UK, when Citibank, Deutsche Bank, JPMorgan Chase and the Royal Bank of Scotland were fined in 2013 for their traders'€™ involvement in the manipulation of the London Interbank Offered Rate (Libor) quotation for the Japanese yen.

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