Consumers feel the pinch of rates hikes

The Jakarta Post, Jakarta

Siti Mulyana, a civil servant, recently bought her 22-year-old son a Yamaha Vega-R 110 cc motorcycle on credit. For that, she had to pay Rp 1.5 million in down payments and 29 payments of Rp 400,000 monthly installments to a finance company through Bank Rakyat Indonesia (BRI).

"The interest rate is about 20 percent. The original price of the bike was Rp 10.6 million. But since I bought on credit, it will accumulate to about Rp 13 million," the 45-year-old woman said.

Everything went well for her until the recent downturn in the rupiah, which forced the central bank to raise its benchmark interest rate by 0.75 percent.

While the move has so far prevented the rupiah from falling further, it is bad news for Siti and millions of others in this consumption-driven economy.

"If the finance company raises the rate, it'll be hard for me to pay, as other prices of goods have also increased. I might even have to sell (the bike) to others who can afford to continue the credit," she said.

Bank International Indonesia (BII) confirmed the recent interest rates hike from Bank Indonesia would eventually force banks here to pass on the costs to customers of consumer loans.

"We will have to adjust the rates for loans of car, motorcycle, and mortgage loans by a range of between 1 to 2 percent," said Rudy N. Hamdani, BII's director for consumer banking.

Currently, the bank's average interest rates for car and motorbike loans stood at 6.5 percent, while mortgage were at 12.9 percent.

Rudy, however, said he was confident the move would not result in a rise of bad loans for the bank.

"Our borrowers have been selected through a number of processes. I do not think higher interest rates will mean higher non-performing loans," Rudy told The Jakarta Post.

BII's first-half report said that, of the Rp 6.6 trillion it has issued in consumer loans, 32.4 percent were mortgages, 25.8 percent were for motorcycle and 19.8 percent for cars.

Meanwhile, Bank Central Indonesia (BCA) president director Djohan E. Setijoso said the bank would soon raise its interest rate for loans by about 1 percent.

Setijoso believed the higher rates would not disrupt the bank's lending expansion growth at this point.

"We believe the loans will grow at around the same level we posted in the last six months," he said recently.

As of June, BCA consumer loans stood at 7.5 trillion, consisting of Rp 3.6 trillion in vehicle loans, Rp 2.8 trillion of mortgages and Rp 987 billion in credit cards.

Dennis Firmansjah, secretary general of the Indonesian Financial Services Association -- a grouping of finance companies -- said most were forced to raise their interest rate because their funding sources were predominantly from domestic banks.

"Some of our members have made negotiations with their counterpart banks and have reached an agreement to up the rates by between 1 percent to 2 percent this week, depending on respective company's ability," he told the Post.

He explained that before the hike, interest rates for car credit stood at 17 percent and for motorcycles at about 26 percent.

Dennis predicted that any downturn in credit expansion would not last.

"When the Idul Fitri, Christmas and New Year celebrations come, consumer credit will again be robust," he said. (006)