BI returns benchmark rates ceiling to Jibor

JAKARTA (JP): Bank Indonesia (BI) reverted to the Jakarta Interbank Offered Rates (Jibor) yesterday as the basis for determining the ceiling of bank deposit rates.

BI Governor Sjahril Sabirin said the decision was made to ensure a "flexible monetary policy".

Under the ruling, effective yesterday, the interest rate ceiling for rupiah deposit is set at 500 basis points above the preceding weekly average Jibor. The rate for foreign exchange deposits is fixed at 100 basis points above the Jibor benchmark.

Saving deposits offered with rates above the ceiling will not be guaranteed by the government under the new ruling.

The government in January promised to guarantee all banks' obligations to allay fears of jittery depositors following the closing of 16 banks in November and the dire state of many of the country's banks.

Previously, the maximum rupiah rate was 125 percent of Bank Indonesia promissory notes (SBI).

"Using the SBI rates as a benchmark was pretty rigid," he told reporters yesterday following a meeting with several economic ministers.

The central bank will announce the benchmark rates for rupiah and foreign exchange deposit savings every Friday afternoon, which will be valid for the following week.

In the event the Friday falls on a public holiday, the bank will announce rates on the previous working day. BI has the right to make the announcement on any other days.

The central bank has also set a ceiling on interbank overnight rates, which will be based on the weighted average of the overnight rates offered by the banks contributing to Jibor.

Although the banks are allowed to freely set the overnight rates, BI will only guarantee principal payments and interest rates at the ceiling.

Some banking analysts said BI's move on the benchmark for deposit rates might be an effort to provide banks with operating profit to increase their loan loss reserves amid the increasing amount of nonperforming loans.

Based on the SBI benchmark, many banks had to subsidize their third party funds as they had to pay higher interest rates for the deposits compared to the SBI rates.

In the economic crisis, most banks are choosing to put their money in SBIs as lending activities have been virtually halted and the interbank money market is considered risky in terms of safeguarding the banks' own liquidity to pay their dues.

The new ruling would effectively lower the deposit rates because the Jibor rates have been unrealistically lower than the SBI rates, an analyst said.

He said last week's Jibor rates were between 45 percent and 50 percent, compared to the one-month SBI rate at 58 percent.

The new interest rates policy will lead depositors to turn to SBIs, which offer better rates, or to state banks which are deemed less risky.

"This will send more banks into IBRA (Indonesian Bank Restructuring Agency)," he said, adding that this would accelerate the restructuring process of the banking sector.

Some analysts worry the new ruling might cause further capital flight as domestic time deposits would become less attractive compared to the looming hyper-inflation environment and amid nervousness in the banking sector following the run on the country's largest private bank, Bank Central Asia, for more than two weeks.

BI director Miranda Gultom was quoted by the state news agency Antara as saying that the government would accelerate the ownership restructurization of BCA to prevent a continuing run on the bank and to improve overall confidence in the banking sector.

She said no bank could withstand a sustained run, and that the only way to assist BCA was to restructure the ownership.

BCA is currently controlled by the family of former president Soeharto and his long-time business associate Sudono Salim.

Businesses linked to the former first family have been thrown into the spotlight recently over allegations of uncurbed cronyism in the past and unsavory business activities. (rei)