Sat, 05 Jul 2003

Banks committed to lower lending rate: BI

The Jakarta Post, Jakarta/Makassar

Bank Indonesia senior deputy governor Anwar Nasution said on Friday that the country's commercial banks were now committed to lowering their high lending rates to make loans more affordable for the corporate sector.

He said that the commitment was made during a meeting on Thursday evening between bankers and the central bank. The meeting was also attended by Minister of Finance Boediono and Coordinating Minister for People's Welfare Jusuf Kalla.

Anwar said that a special team had been set up to analyze the problems that had been preventing banks from cutting down rates, and added that the team would file its report next week.

"There's a commitment from them to lower lending rates," Anwar was quoted by as saying.

Separately, Jusuf said in Makassar, South Sulawesi, that the government and the central bank was hoping the lending rates could decline to between 15-16 percent by August.

"Last night (Thursday), we agreed that the (lending) rates could be lowered to 15-16 percent," he told reporters.

He added that the favorable lending rate for the business sector was actually around 12 percent.

The central bank has gradually cut down its benchmark interest rate over the past year, hoping to push banks to also cut down their lending rates so that the corporate sector could expand their business activities, which in turn would help accelerate the country's economic recovery. But although the interest rate on one-month Bank Indonesia SBI promissory notes had declined to a six-year low of 9.30 percent from over 13 percent earlier this year, lending rates remained stubbornly high at 17 to 18 percent.

Some bankers said previously that they had to maintain higher lending rates to compensate for lower revenues obtained from government bank recapitalization bonds they held onto amid the declining SBI rate. The interest rate of some of these bonds is linked to the SBI rate. They also argued that channeling loans to the corporate sector are still considered risky, as many companies were saddled with huge bad debts.

But Anwar said that there were now signs that banks were starting to lower their lending rates, with the giant Bank Mandiri having recently cut down its rate to 16 percent, and Bank BNI to 17 percent.

"This is good progress," he said.

He hoped that the move would be followed by other banks.

He, however, said that the government must also play its role to further improve the investment climate and accelerate the restructuring of the country's corporate sector.