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Jakarta Post

Banks won’t immediately follow BI’s decision to cut rates

  • Anton Hermansyah
    Anton Hermansyah

    The Jakarta Post

Jakarta   /   Tue, September 26, 2017   /   03:36 pm
Banks won’t immediately follow BI’s decision to cut rates Asian Development Bank (ADB) Indonesia country economist Emma Allen (JP/Anton Hermansyah)

The Asian Development Bank (ADB) says banks in Indonesia will not immediately cut their interest rates, despite Bank Indonesia (BI) cutting its reference rate two times in August and September.

Currently, most of the banks were struggling to repair their asset quality from non-performing loans (NPL) and were not ready for a further rate cut, ADB Indonesia country economist Emma Allen said in Jakarta on Tuesday.

"It takes time for the rate cut. What we see is that many of the midsized banks are focusing on increasing asset quality rather than chasing credit growth," she said during a press briefing in Jakarta on Tuesday.

Read also: BI cuts rate again to spur economic growth

She added it was impossible for loan growth to reach double digits at the end of this year, but it might be close to 10 percent.

According to BI's latest data, loans grew by 8.2 percent in July compared to the same period last year. In the same month, NPL reached 3 percent. BI estimates between 8 to 10 percent loan growth this year.

Allen said both BI and the Financial Service Authority (OJK) had done the right thing to support loan growth but restructuring in the banking industry made loans run slower than expected. "To increase loan growth, Indonesia needs to move a larger proportion of the population into the banking system, but this is a long term measure," she said. (bbn)