Lending rate could go down to 13%

Lending rate could go down to 13%

The Jakarta Post, Jakarta

Lending rates are expected to decline to an average of 13
percent by year-end from the current level of more than 15
percent, according to a senior banker.

Bank Negara Indonesia (BNI) vice president Arwin Rasyid said
on Friday that the decline in the interest rate on Bank Indonesia
SBI promissory notes had allowed the banking sector to enjoy
cheaper cost of funds as time deposit rates has also fallen.

Arwin said that with the interest rate on one-month SBI notes
currently standing at 7.33 percent, banks could actually provide
loans to the corporate sector at an interest rate of as low as 12
percent.

He explained that with the time deposit rate now averaging
around 6 percent, plus another 3 percent for administrative costs
(making the total cost of funds 9 percent), banks would still
enjoy a margin of around 3 percent by lending money at an
interest rate of 12 percent.

He added that a 3 percent margin was international standard
practice.

Arwin, however, added that banks had to charge a higher rate
because of the extra cost resulting from provisions for loans
that had turned sour.

At present, troubled loans to the real sector account for
around 18 percent of total credit exposure, Arwin said.

But, supported by the increasing stability in macroeconomic
indicators, which would allow the central bank to keep lowering
the SBI rate, and increasing efficiency within the banking sector
resulting in lower operating costs, Arwin was optimistic that the
lending rate for the corporate sector could reach an average of
13 percent at year-end.

The central bank has been aggressively cutting the SBI rate
for the past couple of years in the hope of pushing banks to also
cut their lending rates and make loans more affordable to the
corporate sector. The SBI rate stood at more than 13 percent
early last year.

Bank Indonesia officials, however, have complained about the
banking sector's reluctance to boost lending to the corporate
sector as lending rates remain stubbornly high.