Interest hikes deal big blow to borrowers

Interest hikes deal big blow to borrowers

Urip Hudiono, The Jakarta Post, Jakarta

This month's bank statement on his mortgage payment came as
somewhat of a shock for Budi Nur Yasin, a 32-year-old employee at
a private company living in Garut, West Java, who found that he
now has to dig deeper into his pocket to pay off his home loan.

In the previous months, Budi paid Rp 550,000 (US$55) in
monthly installments to Bank Danamon for the mortgage, which has
a repayment period of 15 years and an annual interest rate of
11.5 percent.

The installments were to pay off Rp 40 million after Budi had
paid Rp 30 million as a deposit for the 36-square-meter house.

"But the bank notice told me that I have to pay Rp 650,000 per
month," he said. "The mortgage's interest rate has also been
raised to 18 percent."

Although Budi acknowledged that the mortgage agreement had
stipulated a possible interest rate adjustment, he had not
expected it to be so drastic.

"This will surely be a burden for our family," he said. "An
additional Rp 100,000 for just the mortgage alone would probably
be OK, but the fact is that almost all prices have been
increasing, especially for fuel and food."

Budi is now considering transferring the mortgage to another
bank offering a lower interest rate.

"The problem is whether my mortgage is still acceptable for
transfer, because from what I know, banks usually accept mortgage
transfers only before a certain number of installments have been
paid, while I've been paying mine for a year or so," he said.

"And the other banks might adjust their loan interest rates as
well in the future."

Budi's assumption could well be correct, considering the
recent slump in the rupiah and rising inflation, which has forced
the central bank to continuously raise its key interest rates
since July.

While the move has so far managed to ease the situation, it
spells bad news for those paying off mortgages like Budi and
millions of other borrowers in Indonesia's consumption-driven
economy, as banks have in response been pushed to hike their
rates as well.

A survey from Bank Indonesia (BI) shows that the average
interest rate for loans during this year's third quarter has
stood at 16 percent, up from 14 percent during the previous
quarter, and is expected to continue to rise to 17 percent by the
year's end.

Fortunately, in spite of BI's latest rate hike to 12.25
percent, several major banks in the country said that they would
still be able to avoid raising their interest rates on loans
again.

Bank Mandiri corporate secretary Ekoputro Adijayanto told The
Jakarta Post that the lender had actually anticipated the central
bank's interest rate hike.

"We anticipated it by raising our interest rate to an average
of 16 percent in October. With that level, we already have a
sufficient interest margin and do not see any need at present to
raise it further," he said, although acknowledging that it may
reevaluate it if the BI rate rises any further.

Mandiri, the country's largest lender by assets, currently
offers a 16.75 percent interest rate for home loans, which
currently amount to some Rp 2.5 trillion.