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Lending growth remains healthy despite high interest rates: Bankers
BI cut its benchmark rate in October for the fourth consecutive month as it aims to boost lending growth, which slowed to a 21-month low amid the country’s sluggish economic growth.
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Bank Indonesia's (BI) main office on Jl. Thamrin, Jakarta. Bankers have said local banks face difficulties adjusting their lending rates to the recent cuts to BI's benchmark rate. (JP/Rafaela Chandra)
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ankers have acknowledged the country’s banks face difficulties reducing their lending rates despite a series of cuts to Bank Indonesia’s (BI) reference rate in recent months, as many banks, especially low and mid-sized banks, still have liquidity problems.
However, bankers also claimed that despite the relatively high lending rates, lending growth remained relatively healthy.
President Joko “Jokowi” Widodo has called on local banks to gradually lower their lending rates following the cuts to BI’s reference rate so that it is easier for businesses to take out loans. It is hoped that loan growth will revive the country’s sluggish economic growth.
The president director of private lender Bank Central Asia (BCA), Jahja Setiaatmadja, said that low-interest rates were not the only way to boost loan growth, pointing out that the double-digit loan growth recorded in 2018 despite BI’s decision to increase its benchmark interest rate by more than 100 basis points.
“The hypothesis is that loan growth is not only affected by interest rates, although [lower] interest rates are needed for businesspeople to compete in the international market,” said Jahja during a discussion at the Indonesia Banking Expo in Jakarta on Nov. 6.
Jahja said the belief that loan disbursement would increase if banks lowered their interest rates was not correct. “It is not certain that if we lower our interest rates credit will grow,” Jahja told the audience. However, he said banks would gradually lower their interest rates to follow the benchmark.
BI cut its benchmark rate in October for the fourth consecutive month as it aims to boost lending growth, which slowed to a 21-month low amid the country’s sluggish economic growth.
