Banking experts welcome Bank Indonesia's move<\/p>\n
JAKARTA (JP): Banking analysts welcomed yesterday Bank
\nIndonesia's plan to raise the reserve requirement of commercial
\nbanks to 5 percent next April from the current level of 3
\npercent.<\/p>\n
The analysts said that the announcement on the rise in the
\nreserve requirement Wednesday was timely as it would give banks
\nenough warning to adjust their activities before the policy took
\neffect.<\/p>\n
David Chang, an analyst at PT Vickers Ballas Tamara, said that
\nthe 2 percentage point-increase in the reserve requirement would
\nbe sufficient to help cool down the overheated economy.<\/p>\n
Bank Indonesia's announcement to increase the reserve
\nrequirement on April 16 next year is part of its policies to halt
\nthe fast growth of banking loans.<\/p>\n
The new policy will require banks to place 5 percent of their
\nthird parties' funds (time deposits, savings and cash) in their
\nchecking accounts at the central bank. Under such a policy, the
\ncentral bank will, therefore, be able to squeeze the money supply
\nby 5 percent of the total time deposits and savings held by
\nbanks.<\/p>\n
According to Bank Indonesia's latest data, the total savings
\nand time deposits held by the country's 240 commercial banks
\nexceeded Rp 247.34 trillion (US$105.7 billion) in July this year.<\/p>\n
Chang said that the rise in the reserve requirement would not
\nreally hit banks' earnings next year as long as they could
\nmaintain their interest margins and give more attention to fee-
\nbased revenues.<\/p>\n
\"I don't think the new reserve requirement will affect banks'
\nearnings next year,\" he told The Jakarta Post.<\/p>\n
The total loans provided by banks rose by 25 percent to Rp
\n264.55 trillion as of July of this year from Rp 211.76 trillion
\nfor the same month of 1995. The growth far exceeded the central
\nbank's target of 18 percent for this fiscal year, which will end
\nin March.<\/p>\n
The analysts said that the competition to raise funds from the
\npublic will be tighter but it will have no significant impact on
\ninterest rates.<\/p>\n
\"The inflation rate next year is likely to further decline as
\na result of the central bank's tight money measure, enabling
\ncommercial banks to at least maintain their interest rates at
\ntheir current levels,\" said an analyst at a local securities
\ncompany.<\/p>\n
Bank Indonesia Governor J. Soedradjad Djiwandono said on
\nWednesday that the growth of the broadly-defined money supply
\n(M2) -- consisting of currency, demand deposits and quasi money
\n-- remained high, at 28 percent in July, owing to a continued
\nincrease in the bank loans and the significant growth in the
\ninflow of foreign exchange.<\/p>\n
He said that the narrowly-defined money supply (M1) --
\ncomprising only currency and demand deposits -- grew by 16
\npercent, while the primary money supply (M0) remained flat at 14
\npercent in the same month.<\/p>\n
The rise in the reserve requirement is the second since
\nFebruary when the central bank raised it to 3 percent from 2
\npercent.<\/p>\n
According to Bank Indonesia's annual report for 1995\/96, the
\ngrowth rate of M1, which dropped to 14 percent in February, rose
\nagain to 18.4 percent in March.<\/p>\n
The M2 growth rate dropped to 21.5 percent in March from 22
\npercent in the same month last year.<\/p>\n
Net foreign assets contributed Rp 9.1 trillion to the M2
\nexpansion, which reached Rp 232.5 trillion in March.<\/p>\n
According to Bank Indonesia, the substantial growth in the net
\nforeign assets in 1995\/96 was fueled by a significant increase in
\nforeign direct investments and massive inflows of offshore
\nfunds. (hen)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/banking-experts-welcome-bank-indonesias-move-1447893297",
"image": ""
},
"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
}