Thu, 03 Jul 2003

Bank Indonesia to talk with banks on high lending rates

The Jakarta Post, Jakarta

Bank Indonesia (BI) plans to summon the management of some of the country's major banks to discuss problems concerning their reluctance to cut lending rates despite the sharp drop in the central bank's benchmark interest rate.

"The meeting would not be a forum where the central bank imposes its will upon the banking industry to disburse loans for the business sector," Bank Indonesia senior deputy governor Anwar Nasution was quoted by Antara as saying on Wednesday.

He said that the meeting would take place on Thursday and would be participated in by 14 banks.

The benchmark interest rate of the one-month Bank Indonesia SBI promissory notes has dropped from more than 17 percent in the beginning of 2002 to the current 9.30 percent.

The central bank has hoped that the lower benchmark rate would encourage banks to also cut lending rates to make their loans more affordable for the corporate sector. This in turn should help accelerate economic growth.

But the banking industry is apparently turning a deaf ear to the central bank's call as bank lending still stood high at around 17 percent to 18 percent.

Earlier, some analysts warned that some banks were still facing difficulties in issuing new loans due to their limited capital and outstanding non-performing loans (NPL), making lending to the business sector a risky undertaking.

Anwar attributed the high lending rates to the mounting NPL.

However, Anwar acknowledged a number of major banks such as Bank Central Asia and Panin Bank had significantly reduced their interest rates.

"But for banks that have been able to resolve the problem of NPLs, there is no excuse for them not to disburse loans," he said.

Elsewhere, Anwar slammed banks' effort to boost their capital adequacy ratio through the issuance of bonds.

"Banks should earn their profits from interest on loans rather than from bonds," he said, adding that most of banks still counted on the interest accrued from large government bonds.