Central bank calls on banks to lower lending rates

Central bank calls on banks to lower lending rates

The Jakarta Post, Denpasar

Bank Indonesia has called on the country's banking industry to
reduce lending rates in line with a declining interest rate on
central bank promissory notes (SBIs) to make borrowing more
affordable to the corporate sector.

"Banks should cut their lending rates to persuade businesses
to take out loans," Bank Indonesia deputy governor Bun Bunan
Hutapea told Antara on the sidelines of a seminar on small and
medium-sized enterprises (SMEs) in Bali.

Last week, the interest rate on one-month Bank Indonesia SBIs
fell to 10.27 percent from 10.44 percent the previous week. The
interest rate on three-month notes also declined to 10.18 percent
from 10.88 percent.

Early last year, the interest rate on one-month SBIs stood at
more than 17 percent.

Bank Indonesia Governor Burhanuddin Abdullah said last week
that the benchmark rate could still further drop to 10 percent on
the hope of increased bank lending to the business sector, which
would in turn help stimulate economic growth.

Despite an aggressive interest rate cut by the central bank
last year, local banks have largely been reluctant to boost
lending, partly because they are still struggling to recover from
the late 1990s financial crisis. Boosting the amount of lending
would put banks at a serious risk, particularly as many companies
are still saddled with bad debts.

Banks are charging borrowers with interest rates of between 16
percent and 18 percent, compared to a time deposit rate of about
13 percent.

Bun Bunan, however, said that Bank Indonesia would not tell
banks what the lending rate should be, saying that it would be up
to the banks to decide.

The Bank Indonesia senior official also said that banks should
pay more attention to SMEs, which have proved to be relatively
unscathed by the country's economic crisis.

"Banks are still hesitant about lending them money, given the
risky nature of SMEs," he said, adding that one of the many
handicaps plaguing SMEs was not having sufficient collateral.

He said that the problem could be resolved by establishing a
credit guarantee institution.