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rowing calls for lower lending rates nationwide have pushed the Financial Services Authority (OJK) to prepare for a new policy to regulate interest rates in the banking industry, a senior official has said.

OJK deputy commissioner for banking supervision Irwan Lubis said Monday that the new policy would be issued soon, but declined to mention details.

The upcoming rule is expected to further push the downward trend in both lending and savings rates, which also includes a special rate offered by banks to customers with large funds, he said.

The OJK has seen average special rates decline compared to levels recorded before the agency implemented a measure to cap the time deposit interest rate for big clients of major banks in October 2014.

The rate cap was set at 200 basis points (bps) above the BI rate for BUKU IV lenders and 225 bps above the BI rate for BUKU III lenders, meaning from 9.5 percent to 9.75 percent.

No limit has been set for BUKU I and II lenders as they are believed to follow the rate movements of major banks. Regular time deposits below Rp 2 billion will still carry a maximum 7.75 percent interest rate, which was the level guaranteed by the Deposit Insurance Corporation (LPS) at the time. BUKU categories classify banks based on their core capital. BUKU IV lenders are listed as the biggest, with more than Rp 30 trillion of capital per bank.

'€œThe average special rates have been decreasing to about 8 percent currently, far lower than around 10 percent to 11 percent when the OJK first capped the rates,'€ he said.

Executives of the country'€™s top 10 banks have said they would continue efforts to grow low-cost funds that would help drag down their time deposit and lending rates.

The cut in Bank Indonesia'€™s (BI) benchmark rate has not been effective enough to lower lending rates charged by commercial banks, due to the higher deposit rates they offer to big depositors.

With many initiatives launched to boost low-cost funds, Bank Tabungan Negara (BTN) retail funding and distribution director Sis Apik Wijayanto confirmed that the lender saw a 1 percent decline in its cost of funds last year, which dragged down its time deposit and lending rates by 25 bps and 50 bps, respectively.

'€œWe are still reviewing a plan to decrease lending rates in commercial and consumer loans, while hoping that BI may again cut its key rate this week,'€ he said.

In 2014, BI decided to tighten its monetary stance by raising its benchmark rate by 175 bps to 7.5 percent. This resulted in the rise of deposit rates by 70 bps to 8.67 percent in July, squeezing liquidity in the banking system.

Many banks even offered higher rates to retain their big clients, which prompted the OJK to set a maximum limit for rates offered to rich clients, who are categorized as those possessing more than Rp 2 billion (US$149,421) in deposits.

With the promising outlook of the country'€™s inflation, BI is expected to further cut its key rate during an upcoming board of governors meeting following the government'€™s calls for lower lending rates to help stoke Southeast Asia'€™s largest economy.

The central bank lowered its reference rate by 25 bps to 7.25 percent in January, the first cut in 11 months.

Over the weekend, both President Joko '€œJokowi'€ Widodo and Vice President Jusuf Kalla reiterated that BI might need to trim its benchmark rate several more times to give lenders wiggle room to reduce their rates.
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