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)