BI revises rules on overnight loan facility<\/p>\n
JAKARTA (JP): Banks facing funding problems can now get an
\novernight loan facility from Bank Indonesia (BI) as a lender of
\nlast resort by ceding the central bank's SBI promissory notes or
\ntreasury bonds as collateral.<\/p>\n
This new ruling was announced by the central bank on Wednesday
\nfor its overnight loan facility to be provided for banks facing
\nilliquidity problems.<\/p>\n
"But the facility can be used only to overcome short-term
\nfunding problems," Bank Indonesia's deputy director for research
\nand banking supervision Nelson Tampubolon said in a press
\nconference.<\/p>\n
He said that a short-term funding problem was defined as a
\ncondition suffered when a bank's cash inflow was less than the
\ncash outflow, causing the bank to have a negative reserve with
\nBank Indonesia.<\/p>\n
The new ruling was made effective early this week.<\/p>\n
Under the previous rule, established in May 1999, banks could
\nsell their SBI notes directly to the central bank to obtain the
\nloan. The borrowing banks could also sign a repurchase contract
\nwith Bank Indonesia under which banks would surrender their SBIs
\nto the central bank in return for the loan facility, but the
\nbanks would repurchase the notes within a certain period of time.<\/p>\n
But under the new ruling, banks can not sell their SBI notes
\ndirectly to the central bank.<\/p>\n
Tarmiden Sitorus, another deputy director of Bank Indonesia,
\nsaid that if the banks wanted to sell their SBIs to get cash to
\novercome a funding mismatch they could go to the secondary
\nmarket.<\/p>\n
"The new ruling is aimed at helping develop the domestic debt
\nmarket," he said.<\/p>\n
Tarmiden said that banks could only go to the central bank for
\nan overnight loan if they could no longer obtain loans from the
\ninterbank money market.<\/p>\n
"They can come to us after four in the afternoon or between
\nfive and six o'clock ... We really want the central bank to be
\nthe last resort lender," he said.<\/p>\n
Clearing activity ends at four.<\/p>\n
Tarmiden said that the overnight loan facility was designed in
\nthis way to discourage banks from using it.<\/p>\n
He pointed out that the interest rate for the central bank
\novernight loan facility is very high compared to the similar
\nfacility in the money market.<\/p>\n
He explained that the interest rate was 200 basis points above
\nthe weighted average interest rate of the interbank overnight
\nmoney market or the weighted average interest rate of the one-
\nmonth SBI notes, depending on which was higher.<\/p>\n
The interest rate of the overnight facility in the interbank
\nmoney market currently hovers between 10.5 percent and 10.7
\npercent while the interest rate for the one-month SBI notes is
\nnow around 13.5 percent, which effectively puts the interest rate
\nfor the Bank Indonesia overnight facility at about 15 percent.<\/p>\n
"This (rate) is very punitive for the banks. If they can
\nborrow from the interbank money market, they will not come to
\nus," Tarmiden said.<\/p>\n
Under the previous rule, the interest rate for the loan
\nfacility was set at 125 basis points plus the weighted average
\ninterest rate of the SBI notes or interbank money market.<\/p>\n
Tarmiden said that the overnight facility could be rolled over
\nfor 90 successive days. Previously, there was no clear
\nspecification on the roll over period.<\/p>\n
But he added that if a bank continued to ask for the overnight
\nfacility for more than five consecutive days, the central bank
\nwould ask its bank supervision division to check the bank to see
\nwhether there was any structural problem or whether the bank had
\nmisused the overnight facility.<\/p>\n
"If there's a structural problem, we have other kinds of
\ntreatment," he said.<\/p>\n
Nelson said that a bank which was found to have misused the
\novernight facility would risk being denied the same facility for
\na certain period of time or an administrative sanction, including
\na change in the management of the bank or the managers being put
\non Bank Indonesia's black list.<\/p>\n
He dispelled concern about the impact of the new rules,
\nassuring that the overnight loan facility would not lead the
\ncentral bank to suffer as in the case of the emergency liquidity
\nsupport injected to troubled banks between 1998 and 1999.<\/p>\n
He pointed out that the SBI notes to be used as collateral
\nmust have a market value of at least 100 percent of the overnight
\nfacility, while the government bonds must have a market value of
\nat least 115 percent of the overnight facility.<\/p>\n
Nelson said that in the future, the central bank would
\nconsider other forms of securities as collateral for the
\novernight facility. (rei)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/bi-revises-rules-on-overnight-loan-facility-1447893297",
"image": ""
},
"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
}