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Jakarta Post

Ultra-rich to place more funds in banks amid liquidity crunch: Economists

  • Yunindita Prasidya

    The Jakarta Post

Jakarta   /   Wed, June 3, 2020   /   07:42 am
Ultra-rich to place more funds in banks amid liquidity crunch: Economists Illustration of a bank (Shutterstock/Anton Violin)

The ultra-rich are likely to boost their savings in banks amid the high levels of uncertainty in the overall economy, as banks increase deposit rates to lure funds, economists say.

Perbanas Institute economist Piter Abdullah said deposits from high-net worth individuals would increase, defying the trend of an overall slowdown in third-party funds in local banks as lower-income people’s incomes declined as a result of the ongoing COVID-19 pandemic.

“My guess is that the third-party funds that will increase are those from savers with assets over Rp 2 billion [US$138,403]. Meanwhile, savings under Rp 2 billion will decrease,” Piter said. Savings under Rp 2 billion, which are fully insured by the Deposit Insurance Corporation (LPS), account for 43 percent of deposits in local banks, while the remaining 57 percent are in accounts with more than Rp 2 billion, LPS data show.

Third-party funds have been steadily increasing during the pandemic from 7.71 percent year-on-year (yoy) in February to 8.08 percent in May, Financial Services Authority (OJK) data show. Economists have voiced concerns over liquidity in the financial system as banks launch loan-relaxation measures that could dry up liquidity.

Bank Indonesia (BI) has relaxed reserve ratio requirements for local banks to boost liquidity in the financial system and has allowed banks to trade government bonds they hold with the central bank should they need fresh liquidity. These efforts could free up more than Rp 800 trillion in liquidity in the banking sector.

Read also: BI sees rupiah strengthening to pre-pandemic level as it intervenes in market

Aviliani, senior economist of the Institute for Development of Economics and Finance (Indef), said that to address potential liquidity problems, BI’s efforts to boost liquidity needed to be conducted as soon as possible to save banks.

Some banks have increased their deposit rates to attract more funds. Bank Mega offers deposit rates of up to 7 percent, while Bank Mandiri, Bank Bukopin and Bank Tabungan Negara (BTN) respectively offer 6.5 percent, 6 percent and 6.25 percent, according to BI’s Money Market Information Center (PIPU) as of May 28, as published on kontan.co.id,

“In normal conditions, [savers] would look for those with high rates, but in this situation, they will look for banks that they consider safe for them,” said Aviliani. She expected overall growth of third-party funds to slow down this year but that would not be reflected among high-net worth individuals.

“For the upper income bracket, whose [funds] are not affected by their consumption, most likely their placement of funds will increase. Why? Because they tend to look for safety by placing their money in banks and in government bonds,” Aviliani explained.

This is in contrast to the stock market, which is experiencing sell-offs as reflected in the downward price movement, she added.

Read also: Indonesian banks have sufficient liquidity despite loan restructuring, pandemic: Economists

BCA, the nation’s largest private lender, confirmed the recent uptick in third-party funds. BCA president director Jahja Setiaatmadja said that the bank’s loan-to-deposit ratio of between 78 and 80 percent so far this year indicated its liquidity was in check.

“Since early January, February, March, our liquidity has increased quite well, especially from current accounts and savings accounts [CASA],” Jahja said on May 27.

BCA’s third-party funds increased by 16.8 percent to a total of Rp 741.02 trillion by the end of the first quarter this year, up from the Rp 634.66 trillion at the end of December 2019. The growth in third-party funds was contributed by a 17.3 percent yoy increase in the bank’s CASA and a 15.1 percent increase in the size of time deposits.

BNI Syariah president director Abdullah Firman Wibowo said the lender also saw a 16.58 percent increase in third-party funds to Rp 44.86 trillion, around 65 percent of which are in CASA.

“In general, the people’s faith is still high in entrusting their funds to be kept within the national banking industry,” said LPS chairman Halim Alamsyah during a media briefing with the Financial System Stability Committee (KSSK) on May 11.

Read also: Indonesia’s financial system at risk amid pandemic: KSSK

Banks’ liquidity and capital are therefore at safe levels, according to the OJK in its official press statement. As of April, the ratio of liquid assets to non-core deposits stood at 117.8 percent, well above the 50 percent threshold. Meanwhile, the ratio of liquid assets to third-party funds was at 25.14 percent, above the 10 percent threshold.

Banks that have resorted to increasing their rates to attract funds are for the most part smaller banks looking to keep their customers from turning to big banks.

“A high deposit rate is not something that banks desire. Increasing rates in a situation like this is actually dangerous as it grinds the bank’s profits and liquidity,” Piter said. “However, a smaller profit rate is still better than having liquidity problems.”

He added that the risk of moral hazard caused by banks competing to offer the highest deposit rates would not occur as increasing deposit rates resulted in added costs, while corporations would innately try to optimize profits.