JAKARTA: Major lenders have begun to trim their lending rates following the central bank’s decision to cut its benchmark rate last month amid a risk of tightening liquidity in the banking system.
With Bank Indonesia (BI) cutting its key rate by 25 basis points (bps) in January, the banks are able to reduce their time deposit rates and in turn slash their lending rates.
Bank Mandiri president director Budi Gunadi Sadikin said tighter liquidity conditions would not stop the lender reducing its lending rates by around 25 bps to 50 bps in all types of loan this February.
“We’re also cutting our time deposit rates within the same range. The liquidity situation in the market is tight right now as the government is to absorb funds through bonds, but we hope it will get better,” Budi said in Jakarta recently.
Bank Rakyat Indonesia (BRI) president director Asmawi Syam and Bank Negara Indonesia (BNI) president director Achmad Baiquni expressed similar views, noting that their respective banks had managed to cut their lending rates despite liquidity pressure.
Asmawi said BRI would cut its lending rate by at least 25 bps for retail and corporate loans this month, in the wake of the government’s decision to slash the lending rate for its micro credit loan (KUR) program from 12 percent to 9 percent this year.
“We will lower our time deposit rates first to follow the cut in the BI rate and seek low-cost funds instead by improving our savings and current account products,” he said.
Meanwhile, Achmad of BNI said his bank would cut its lending rate for retail loans by 25 bps this month as the first part of a strategy to boost the growth of low-cost funds.
“Although we are cutting time deposit rates, we’re still able to increase third-party funds, as we aim to grow our current and saving accounts by around 12 percent to 13 percent this year,” he said.
Bank Central Asia (BCA), the country’s largest private lender, cut its lending rate in the small and medium enterprise (SME) segment by 0.25 percent on Feb. 1 as it saw more relaxed liquidity in January.
“Currently, our SME lending rate stands at about 13 percent and we will cut the SME rates for all sectors,” BCA president director Jahja Setiaatmadja said.
However, Jahja said BCA would not cut its time deposit rates, which stand at around 5.25 percent to 5.75 percent, the lowest level in the banking industry; other banks offer rates between 8 percent and 9 percent.
“The important thing is we’ve managed to decrease our lending rates, even though our net interest margin [NIM] will slightly decline. We will see higher income as lower lending rates mean our loan volume will increase,” he said.
Meanwhile, Deposit Insurance Corporation (LPS) economist Doddy Ariefianto said the agency saw liquidity risk in the banking system for the upcoming months as a result of the government’s “front-loading” strategy for bonds issuance, which sees a majority of government bonds released earlier in the year.
Samuel Sekuritas analyst Rangga Cipta said that the risk of “crowding-out effect”, or head-to-head competition between the government and banks in absorbing liquidity, had yet to be seen in yields of sovereign bonds, which were still falling.
However, he agreed that BI’s monetary policy was still “too tight” to be able to help boost economic growth.
“The most effective monetary relaxation would be another BI rate cut, accompanied by less-aggressive usage of foreign exchange [forex] reserves. Lower forex reserves would increase the squeeze in liquidity,” he said.
