Deposit rates soar after hike in SBIs

JAKARTA (JP): Domestic commercial banks have raised interest rates on one-month deposits to as high as 67.5 percent, following the sharp rise in central bank promissory note (SBI) rates on Monday. The rates are the highest seen during the era of New Order governance.

But analysts warned yesterday that excessively high interest rates, if maintained for a long period of time, will annihilate an already weak banking sector.

"If banks have to offer high rates they will eventually collapse because they cannot afford to pay the gains which will accrue to deposits," banking expert Sutan Remy Sjahdeni told journalists on the sidelines of a seminar organized by the Capital Market Society.

State Bank Dagang Negara (BDN) offered the highest interest rates to its customers yesterday. The bank's rates for a one- month deposit more than doubled, jumping to 67.5 percent per annum, up from 33 percent the day before.

BDNs three-month deposit rates jumped from 28 percent to 45 percent, while its six and 12 month deposit rates stayed at 27 and 24 percent respectively.

Interest rates on state Bank Rakyat Indonesia one-month deposits rose from 33 percent to 50 percent per annum, while three-month deposit rates rose from 26 percent to 37 percent.

State Bank Negara Indonesia (BNI), which is publicly listed, followed suit and raised interest rates from 33 percent to 56 percent for one-month deposits, and from 26 percent to 37 percent for three month deposits. Its six month rate rose by 10 percentage points to 30 percent.

The country's largest private bank, Bank Central Asia (BCA), hiked one month interest rates to 54.5 percent, up from 32 percent, and three month rates to 30 percent, up from 28 percent.

Bank International Indonesia (BII) increased one-month deposit rates from 24 percent to 45 percent and three-month deposit rates from 22 percent to 30 percent.

Bank NISP raised one-month deposit rates to 45 percent, three- month rates to 30 percent, six-month rates to 27 percent and one year rates to 24 percent.

Commercial bank rates must not exceed central bank SBI rates by more than 50 percent, up until April 15. From April 16, the ceiling will be reduced and commercial rates must thereafter not exceed SBI rates by more than 25 percent.

On Monday, Bank Indonesia rates on overnight SBIs stayed at 40 percent, rates on two-day SBIs were raised to 41 percent, three- to-six day rates were raised to 42 percent, one week rates were raised to 43 percent, two-week rates to 44 percent and one-month rates to 45 percent.

Two-month SBIs rates were increased to 40 percent, three-month rates to 30 percent, six-month rates to 20 percent and one-year rates to 18 percent.

When announcing the SBI rate increases on Monday, Bank Indonesia governor Sjahril Sabirin said the move was intended to absorb excess liquidity in the market which could lead to higher inflation and further weakening of the rupiah.

A former BNI director, Remy, questioned the efficacy of using interest rates to shore up the rupiah for a long period.

"It will be effective in the very short-term only. Frankly, I question the move because Bank Indonesai has tried it before, with no success. So why use the same ineffective policy instrument again?" Remy said.

Bangun S. Kusmulyono, president of Bank Nusa Internasional, said the increase in SBI rates would only increase the amount of bad debts in the banking sector.

"Businesses cannot operate when interest rates are high. This will cause more bad debts," he said.

Tommy Winata, chairman of the Artha Graha Group which owns Bank Artha Graha, said the increase in interest rates would weaken the competitive position of the country's business sector but would not automatically drive companies out of business.

"I don't think it will kill business as such, because the life and death of companies depends on each venture's strategy in facing the crisis," he said. (team)