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Jakarta Post

Big banks cut deposit rates ahead of reference rate cut: LPS

  • Anton Hermansyah
    Anton Hermansyah

    The Jakarta Post

Jakarta   /   Wed, September 14, 2016   /  08:54 am
Big banks cut deposit rates ahead of reference rate cut: LPS Deposit Insurance Corporation (LPS) commissioner board head Halim Alamsyah poses after attending an open house at the home of Financial Services Authority (OJK) chairman Muliaman Hadad in South Jakarta on Thursday. (JP/Stefani Ribka)

Big lenders are cutting their deposit rates ahead of the reference rate cut, the Deposit Insurance Corporation (LPS) says, forcing the institution to change the methodology used in calculating the deposit guaranteed rate.

Having cut its deposit guaranteed rate by 50 basis points (bps) to 6.25 percent, the LPS deemed the move too slow compared to the industry, which has earlier seen several deposit rate cuts.

"With Bank Indonesia (BI) now using their new reference rate system [7-day repo rate], banks will be faster in reviewing their deposit rate," LPS commissioner board head Halim Alamsyah said at his office in Jakarta on Tuesday.

Responding to the changes, the LPS is identifying the leading banks in the market's deposit rate instead of composing an aggregate rate. "The bigger banks, and especially foreign banks, dare to borrow from the inter bank money market because they have a good reputation while smaller banks do not," Halim added.

The LPS’ rate lags behind the industry due to its role as a buffer for bank depositors. The big and systemic banks usually have bigger bargaining power over their depositors in determining deposit rates.

Smaller banks are more sensitive to the LPS rate as they must provide deposit rates in line with the LPS rate in order to have LPS' guarantee for their depositors, while at the same time reducing the margin they gain from their lending rates to debtors.  (ags)

 

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