BI Rate Hikes: How Leasing Companies Are Responding
The policy of Bank Indonesia, which has raised interest rates several times recently, is beginning to be felt by the financing industry through adjustments to the cost of bank funding. However, the impact will not be felt by existing debtors who already have financing contracts.
Chairman of the Indonesian Financing Association (APPI) Suwandi Wiratno explained that the interest rate adjustment only applies to prospective debtors applying for new financing after the cost of funds from banks increased.
“The 75 basis point interest rate hike has indeed caused banks to make adjustments. Some have raised rates by 50 basis points, 75 basis points, or even up to 100 basis points for new loan disbursements. Therefore, the adjustment will be passed on to new debtors,” Suwandi told CNBC Indonesia on Thursday (2/7/2016).
Financing companies currently still rely on bank loans as their main source of funding. This situation makes an increase in the cost of funds unavoidable when banks start raising lending rates.
“For existing debtors, the interest rate remains fixed. Whether rates go up or down, it will not change. So, only new debtors applying for credit in the future will experience the adjustment,” said Suwandi.
The interest rate increase does not automatically cause instalments to spike sharply because the change in rates is relatively small compared to vehicle loan tenors, which can reach five years.
On the other hand, financing companies are now more selective in disbursing credit. This step is taken to maintain financing quality amid the increasing risk of default.
“We are now very careful in approving credit applications. The most important thing is to ensure the debtor’s ability to pay remains good so that financing stays healthy,” said Suwandi.
He claimed that the approach taken with customers facing financing difficulties is not to immediately repossess the vehicle.
“If a customer experiences payment difficulties, we prioritise communication, restructuring, or rescheduling. It should not immediately lead to vehicle repossession,” he said.