Domestic banks to lower deposit rates

Domestic banks to lower deposit rates

JAKARTA (JP): State and private bank associations agreed
yesterday to lower interest rates to a maximum of 47.5 percent
per annum from today.

When announcing the agreement, the state bank association
chairman Widigdo Sukarman and private bank association chairman
A. Subowo said the recent rates war, which sent interest rates to
as high as 67.5 percent, could have killed the banking sector.

They therefore agreed to reduce interest rates to a maximum of
47.5 percent for one-month deposits, 31.5 percent for three-month
deposits, 21 percent for six-month deposits and 19 percent for
one year deposits.

"Even 47.5 percent is still too high for us, but we must
strive to support government efforts to absorb public funds,"
Widigdo told journalists.

However, the agreement is not binding and banks will not be
penalized for breaking ranks and offering higher rates.

"We only have an understanding among bankers not to raise
rates again. If you discover that any banks have raised rates
beyond our limits, please report it to me," Subowo added.

When asked how banks could make gains from the current high
rates, Subowo said: "We are not thinking about making profits for
the time being. We are thinking more of survival."

Widigdo added that most banks had liquidity problems and would
need to use funds collected from the public to meet various
obligations.

"Even if banks have excess funds, they will be unable to issue
corporate loans because no companies can afford the high lending
rates," Widigdo said.

Yesterday, all state banks and some private banks cut their
deposit rates to the agreed level.

The sudden rate cuts surprised eager customers queuing at bank
branches across the city.

"I rushed to here because I read in newspapers yesterday that
this bank offers one-month deposit rates of 67.5 percent, but now
the rate is much lower, you see yourself, 47.5 percent," a
customer at state Bank Dagang Negara (BDN) Pondok Indah branch
said.

BDN director Bambang Sabariman said his bank had raked in
deposits of over Rp 1 trillion during the two days when the bank
was offering 67.5 percent interest rates on one-month deposits.

Commercial banks raised their deposit rates following an
increase in the interest rates of Bank Indonesia short-term
promissory notes (SBIs) to as high as 45 percent.

Bank Indonesia governor Sjahril Sabirin said the rate increase
was intended to absorb excess liquidity in the market, which
threatened to stoke up higher inflation and further weaken the
rupiah.

Sjahril said yesterday the central bank would maintain its
high SBI rates until the rupiah strengthened and stabilized.

"When the rupiah stabilizes, we will reduce SBI rates to a
level based on the currency's strength," he told journalists
after negotiations with the International Monetary Fund (IMF) in
the National Development Planning Board building.

Sjahril said the high rates had strengthened the rupiah's
value. The rupiah has broken through the 10,000 mark and is
currently trading close to 8,000 to the U.S. dollar. Yesterday
the rupiah closed at 8,500 to the U.S. dollar, slightly weaker
than the previous days closing level of 8,375.

When the rupiah began to show signs of weakening again,
Sjahril said the central bank might consider further increases in
SBI rates.

Subowo, a director at Bank Central Asia (BCA), the country's
largest private bank, said some banks had already suffered losses
as a result of the high interest rates. Therefore, Bank Indonesia
should reduce SBI rates, rather than raise them, he argued.

Widigdo, who is also president of Bank Negara Indonesia (BNI),
said domestic banks could bear the costs of the high interest
rates, provided it was not for a prolonged period. (rid)