Wed, 09 Jul 2003

Banks pledge to cut down lending rates

The Jakarta Post, Jakarta

Local banks are to cut their lending rates, albeit cautiously, to follow the central bank's aggressive slashing of its benchmark interest rate, with Bank Internasional Indonesia (BII) and Bank Lippo being the latest to express such commitment.

Speaking after a hearing with House Commission IX on financial affairs, Bank Lippo president Joseph Luhukay said on Tuesday that should the downward trend in Bank Indonesia's interest rate continue, there was a good chance that Lippo's lending rate would go down to around 13 by the end of the year.

He said that the bank's average lending rate was now at 16 to 17 percent.

BII president Sigit Pramono also shared the same optimism, although he was more reticent when it came to setting the target: "It depends on the sector, but we are targeting our lending rate at around 15 percent on average."

He added that the bank's rate for housing credit had declined to 16 percent from around 18 percent previously, primarily because of the central bank's declining rate.

Bank Indonesia has been aggressive in cutting down the interest rate of its one-month Bank Indonesia Certificate (SBI) promissory notes over the past year in the hopes of pushing banks to also cut down their lending rates. A lower lending rate would enable the corporate sector to obtain cheaper loans.

At last week's auction, the SBI rate stood at 9.30 percent, compared to more than 13 percent early this year.

Most banks, however, have been largely reluctant to cut down their lending rates, which are currently averaging at around 18 percent.

Businessmen said that the ideal lending rate should be between 13 to 14 percent.

Bank Indonesia and the Ministry of Finance last week met with a number of top bankers in a bid to persuade banks to cut their lending rates. A special team has been set up to study those problems the banks may face in cutting down the rates. The team is expected to report to the central bank this week.

Some analysts have said that in order for banks to lower their lending rates, the government must push the corporate sector to accelerate the restructuring of their debts to make them more bankable.

The private sector remains hugely indebted, with most of the country's largest production facilities left idle, making them high-risk industries.