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.