Interest rates likely to drop by 1% next year

JAKARTA (JP): Bank deposit interest rates are likely to drop by one percentage point next year due to a favorable business climate which will lead to positive cash-flows, a banker predicts.

Deposit interest rates currently range between 15 and 16 percent.

Winarto said massive business expansion might need to be curtailed to prevent the economy from overheating and that trend would reduce demand for credit.

"Local businesses will be wary of this situation and will use next year as a period of consolidation," he said.

Winarto pointed out that the consolidation period is part of a cycle which starts when a business is planned and gradually developed and expanded.

"After they expand, the businesses either have too much money or are out of money, and so they need to consolidate," he said.

"Consolidation is the end of a cycle and does not necessarily mean that a business is performing poorly," he added.

The Econit economic research group similarly predicted last week that 1996 would be "cooling down" year. The group estimated that this year Indonesia's current account deficit would reach $6.5 billion and inflation rates would go up to 10 percent.

Loans

Commenting on unsecured loans extended by his bank to small businesses, Winarto said BNI has so far approved a third of the applications for unsecured credits and rejected another third considered unfeasible.

The remaining applications, he said, were still being assessed.

"Assessing the applications often takes some time because many of the prospective borrowers are located far away from our bank branches," he said.

The government announced in August that banks can provide collateral-free loans of up to Rp 50 million (US$22,000) for small businesses.

Minister of Finance Mar'ie Muhammad said the lending scheme would first be applied by state-owned banks and followed by private banks.

Winarto said yesterday BNI aims to allocate at least 20 percent of its total loans to small businesses but he did not elaborate.

"We have no loan-disbursement target, but we hope it will be big because we expect half of our borrowers to be small and medium-scale entrepreneurs by the year 2000," he said.

So far, he said, applications for collateral-free loans have reached some Rp 20 billion, mostly from entrepreneurs of small- scale industries, transportation services and agencies.

Small and medium-scale loans currently account for 40 percent of BNI's credit portfolio, he said. (kod/pwn)