Bankers back gradual cut of interest rates
Bankers back gradual cut of interest rates
JAKARTA (JP): Mochtar Riyadi, chairman of publicly listed Bank
Lippo, supported yesterday the move of the Association of State-
Owned Banks (Himbara) and the Federation of Private Domestic
Banks (Perbanas) to gradually lower interest rates.
Mochtar said keeping interest rates at current levels would
devastate the already weak business sector.
He noted that many companies were in trouble because of the
credit crunch and the high interest rate policy pursued by the
government to stabilize the rupiah.
"More companies will collapse if the tight monetary policy is
maintained. Supplying enough liquidity and lowering interest
rates at banks are the best alternatives to help them," he said
at a business luncheon celebrating the fourth anniversary of the
Center for Corporate Leadership, a non-profit institution that
promotes corporate leadership.
Mochtar, who is also chairman of the widely diversified Lippo
Group, said interest rates should be cut gradually because
currency trading was volatile and a cut in interest rates could
backfire on the economy.
Himbara and Perbanas reached a consensus Monday to gradually
lower interest rates. But analysts doubted if it would be
effective enough to curb the interest rates. In the past many
banks faced difficulties keeping their pledges due to liquidity
problems.
Himbara chairman Widigdo Sukarman said the country's seven
state-owned banks had agreed to lower deposit interest rates by 2
percent while private banks pledged to lower rates by 1 percent.
He said the cut would be performed gradually and deposit rates
would probably fall below 21 percent by the end of this year.
Bank Indonesia, the central bank, raised its benchmark
interest rates up to 30 percent on Aug. 19 as part of measures to
shore up the falling rupiah.
In late September, the central bank lowered its interest rates
on one- to three-month SBI papers to a range of 17 percent to 21
percent, from 18 percent to 23 percent.
Deposit interest rates have still hovered between 23 percent
and 30 percent despite the cut in SBI rates.
Mochtar said companies which relied on loans were the hardest
hit by the currency turmoil, which had cut the value of the
rupiah by about 35 percent since early July.
"Loans have become a time bomb for them because they have to
generate a lot of rupiah to finance their offshore loans," he
said.
Mochtar said those companies should renegotiate their loans
and admit their financial difficulties to lenders honestly.
"Foreign creditors and investors will not trust Indonesian
businesses anymore if we're not honest about our difficulties,"
he said.
Another alternative in dealing with the financial
difficulties, according to Mochtar, is to offer convertible bonds
to the public or other corporate investors.
In this way, companies could reduce their financial burdens
because investors would have an option to exchange their bonds
for a company's shares.
Economist Nyoman Moena also applauded the move and said the
central bank had to be the first one to lower interest rates,
because its move would be followed by other banks.
He said local private banks faced more difficulties in
lowering interest rates than state-owned banks.
"It's easier for state-owned banks because they have a
stronger position, especially during this currency crisis which
has seen many people move their money to state banks," he said.
He said although the central bank had cut its interest rates
several times, the rates were still too high.
He said the normal rate for credit was between 18 percent and
20 percent, with deposit rates between 16 percent and 17 percent,
SBI rates between 12 percent and 13 percent, and money market
securities 15 percent. (08)