Banks pledge to cut down lending rates

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.