BI sees slower growth in bank lending<\/p>\n
Leony Aurora, The Jakarta Post, Jakarta<\/p>\n
The country's commercial banks are expected to see slower growth
\nin time deposits and savings this year due to continuing declines
\nin interest rates and other factors, according to a senior
\nofficial of the central bank.<\/p>\n
Bank Indonesia director for banking supervision and
\ninformation Siti Fadjriah also said that bank lending would
\nremain slow during this general election year, especially in the
\nlight of high-profile reports of loan fraud cases.<\/p>\n
\"Alongside the decline in the (Bank Indonesia) benchmark
\ninterest rate, deposit interest rates will also fall,\" Siti said
\nduring a discussion on Indonesia's banking prospects.<\/p>\n
The central bank has been aggressively cutting its benchmark
\ninterest rate over the past couple of years amid a benign
\ninflationary environment.<\/p>\n
The interest rate on one-month Bank Indonesia SBI promissory
\nnotes is currently at an historic low of 8.06 percent, compared
\nto more than 13 percent earlier last year.<\/p>\n
Meanwhile, interest rates on time deposit are around 6
\npercent, which means that depositors will only receive interest
\nof between 4.8-4.9 percent after tax. But if the current
\ninflation rate of about 5 percent is taken into account, the real
\ninterest rate will be negative, which has discouraged many people
\nfrom putting their money in the banks.<\/p>\n
Indeed, according to the Bank Indonesia report, depositors
\nhave withdrawing their money from banks since February 2003.
\nWhile the figure for one-month time deposits totaled Rp 213
\ntrillion during the month, this had dropped to Rp 191 trillion by
\nOctober 2003.<\/p>\n
Experts have said that in addition to the lower interest rate,
\npeople had transferred some of their money into mutual fund
\nproducts, which were still free of tax. Others had invested in
\nthe local stock market, which has recently been one of the top
\nperforming stock markets in the world.<\/p>\n
Siti said another factor that would put the brakes on time
\ndeposit growth in commercial banks was the recent controversial
\nedict issued by the Indonesian Council of Ulemas (MUI), which
\ndeclared that interest was haram (prohibited) according to
\nIslamic Law.<\/p>\n
The MUI further urged Muslims not to use the services of
\nconventional banks, except when there were no sharia banks in
\ntheir areas.<\/p>\n
The edict is not yet final as it still needs the approval of
\nthe MUI board of executives before taking effect.<\/p>\n
Aside from money coming in, the brakes have also been put on
\nmoney going out in the form of loans after loan scandals hit Bank
\nRakyat Indonesia (BRI) and Bank Negara Indonesia (BNI) recently.<\/p>\n
\"The credit risk remains high,\" she said. \"Many banks are also
\nover-liquid and prefer to retain funds.\"<\/p>\n
Total bank lending as of September last year only amounted to
\nRp 454.2 trillion, giving a loan to deposit ratio of 52.5
\npercent.<\/p>\n
The central bank had initially hoped that the lower benchmark
\ninterest rate would push banks to lend more money to the
\ncorporate sector to help accelerate economic growth.<\/p>\n
But bankers say that they still see huge risks in the
\ncorporate sector due to the slow progress made so far in the
\nrestructuring of corporate debt.<\/p>\n
The upcoming general election is also seen as a factor
\nincreasing the jitters among bankers as regards boosting lending.<\/p>\n
But bankers say, nevertheless, that are ready to channel more
\nmoney into the retail and consumer sectors despite the upcoming
\nelection.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/bi-sees-slower-growth-in-bank-lending-1447893297",
"image": ""
},
"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
}