Banks raise deposit rates to 59 percent

JAKARTA (JP): Domestic commercial banks have raised their deposit interest rates by over 2 percentage points as a result of tighter liquidity and competition with the country's central bank to attract funds.

Most commercial banks have raised their one-month deposit rates to 59 percent per annum, up from 57 percent last week. The banks include troubled Bank Danamon, Bank Central Asia, state Bank Ekspor Impor Indonesia and Bank Pembangunan Indonesia.

Some banks are still offering slightly lower rates. Bank Internasional Indonesia is offering a one-month deposit rate of 57 percent, Bank Niaga is offering 54 percent and Bank NISP has set its rate at 52 percent.

"Even when the on-counter rate is set at 59 percent for a one- month deposit, you can still ask for an even higher rate. If you have Rp 500 million, I bet you could even get 65 percent," a money-market dealer at a local private bank said.

The rate hike follows an increase in the maximum time deposit rates which will be guaranteed by the government and an increase in the benchmark central bank one-month deposit rates.

The government raised the ceiling rates for 24-month deposits to 27 percent and for one-month deposits to 59 percent this week, up from 26 percent and 57 respectively in the previous week.

Meanwhile, the average rate of the weekly auction of Bank Indonesia one-month promissory notes (SBIs) on Tuesday stood at 70.14 percent per annum, up from 69.39 percent last week.

The central bank has been offering one-month SBIs through an auction system since last month to allow the market to determine the interest rate. The measure is included in the package of reforms agreed to with the International Monetary Fund (IMF).

The bank plans to auction SBIs for all maturities.

Niaga's chief economist, Wahyu Eko Wardono, said that a number of depositors had taken advantage of SBIs since they were made available to the public because they offered a high return and were risk-free.

"This automatically gives bank customers stronger bargaining power, so commercial banks must increase their rates to hold on to their customers," Wahyu told The Jakarta Post.

Former Bank Indonesia director I Nyoman Moena agreed and said: "As long as SBI rates are higher than bank deposit rates, people will prefer to buy SBIs rather than hold their money in bank deposits."

Moena said he feared that Bank Indonesia would absorb too much money through the SBI auction, unless interest rates were lowered.

That scenario would hamper efforts to revitalize the banking sector and would further hurt the real sector because high lending rates would make it hard for companies to get loans, he pointed out.

Wahyu said commercial banks could also benefit from the high rates if they had excess funds with which to buy central bank promissory notes.

"For example, if you offer 57 percent deposit rates, and place funds in SBIs at 65 percent then you will enjoy an 8 percent spread," he said.

But banks suffering from a lack of liquidity would likely have a bigger negative spread, he added.

Only banks with better fee-based income -- as opposed to interest-based income -- could survive in such a condition. (das)