Banking experts welcome Bank Indonesia's move
Banking experts welcome Bank Indonesia's move
JAKARTA (JP): Banking analysts welcomed yesterday Bank
Indonesia's plan to raise the reserve requirement of commercial
banks to 5 percent next April from the current level of 3
percent.
The analysts said that the announcement on the rise in the
reserve requirement Wednesday was timely as it would give banks
enough warning to adjust their activities before the policy took
effect.
David Chang, an analyst at PT Vickers Ballas Tamara, said that
the 2 percentage point-increase in the reserve requirement would
be sufficient to help cool down the overheated economy.
Bank Indonesia's announcement to increase the reserve
requirement on April 16 next year is part of its policies to halt
the fast growth of banking loans.
The new policy will require banks to place 5 percent of their
third parties' funds (time deposits, savings and cash) in their
checking accounts at the central bank. Under such a policy, the
central bank will, therefore, be able to squeeze the money supply
by 5 percent of the total time deposits and savings held by
banks.
According to Bank Indonesia's latest data, the total savings
and time deposits held by the country's 240 commercial banks
exceeded Rp 247.34 trillion (US$105.7 billion) in July this year.
Chang said that the rise in the reserve requirement would not
really hit banks' earnings next year as long as they could
maintain their interest margins and give more attention to fee-
based revenues.
"I don't think the new reserve requirement will affect banks'
earnings next year," he told The Jakarta Post.
The total loans provided by banks rose by 25 percent to Rp
264.55 trillion as of July of this year from Rp 211.76 trillion
for the same month of 1995. The growth far exceeded the central
bank's target of 18 percent for this fiscal year, which will end
in March.
The analysts said that the competition to raise funds from the
public will be tighter but it will have no significant impact on
interest rates.
"The inflation rate next year is likely to further decline as
a result of the central bank's tight money measure, enabling
commercial banks to at least maintain their interest rates at
their current levels," said an analyst at a local securities
company.
Bank Indonesia Governor J. Soedradjad Djiwandono said on
Wednesday that the growth of the broadly-defined money supply
(M2) -- consisting of currency, demand deposits and quasi money
-- remained high, at 28 percent in July, owing to a continued
increase in the bank loans and the significant growth in the
inflow of foreign exchange.
He said that the narrowly-defined money supply (M1) --
comprising only currency and demand deposits -- grew by 16
percent, while the primary money supply (M0) remained flat at 14
percent in the same month.
The rise in the reserve requirement is the second since
February when the central bank raised it to 3 percent from 2
percent.
According to Bank Indonesia's annual report for 1995/96, the
growth rate of M1, which dropped to 14 percent in February, rose
again to 18.4 percent in March.
The M2 growth rate dropped to 21.5 percent in March from 22
percent in the same month last year.
Net foreign assets contributed Rp 9.1 trillion to the M2
expansion, which reached Rp 232.5 trillion in March.
According to Bank Indonesia, the substantial growth in the net
foreign assets in 1995/96 was fueled by a significant increase in
foreign direct investments and massive inflows of offshore
funds. (hen)