Local banks expected to lower interest rates

Local banks expected to lower interest rates

JAKARTA (JP): A leading banker predicted yesterday that local interest rates will probably fall by up to one percentage point within a few months due to the abundant funds currently held by commercial banks.

The president of the publicly-listed Bank Internasional Indonesia (BII), Indra Widjaja, said that the government's policy of slowing down the growth of banking credits this year has caused over-liquidity at banks.

"You notice that inter-bank interest rates currently touch 11 percent per annum. It indicates that banks are flooded with excessive funds," Indra said.

In its drive to cool down the overheated economy, the government believes that credits extended by the country's commercial banks should grow by no more than 16 percent this year, as compared to last year's growth of 19 percent.

Besides the government's target on credit expansion, Indra said the presence of such excessive funds in the banking industry was driven, among other things, by the booming local capital markets, especially at the beginning of this year.

"It has something to do with the buoyant performance of our capital markets. You can see how much the (Jakarta Stock Exchange) index has risen since January. If it is transformed into rupiah, it is worth trillions of rupiah (billions of dollars)," Indra said.

The Jakarta Stock Exchange (JSX) index rose by 15.27 percent or 78.28 points to 590.76 on Feb. 16, from 512.48 on Jan. 2. The value of transactions reached Rp 8.66 trillion (US$3.7 billion) in the period Jan. 2 to Feb. 16. In the same period, net foreign buying on the JSX was Rp 949.5 billion, compared to Rp 3.6 billion for the whole of 1995.

Indra said that funds raised from the capital markets will be channeled to the public, among others, through the banking sector.

As most banks hold excessive funds, Indra forecasted that banks will soon cut their deposit and lending rates by a half or one percentage to reduce the losses incurred by the idle funds they hold.

Deposit interest rates offered by commercial banks currently range between 12 percent and 17 percent per annum, while lending rates are about 4 percent higher.

"All banks are now adopting a wait-and-see strategy. No one wants to take a risk by cutting rates because once you cut your rate, especially deposit rates, you risk loosing your customers," Indra said.

Speaking on his bank's performance, Indra explained that BII's net profits increased by 35 percent to Rp 190 billion last year from Rp 141.9 billion in 1994. Total assets grew by 29 percent to over Rp 12 trillion from Rp 9.3 trillion.

Its capital adequacy ratio currently stands at 8.9 percent, above the central bank's requirement of 8 percent.

Indra said BII's net profits are targeted to grow by some 20 percent this year, with a targeted credit growth of nearly 17 percent. BII recorded a credit growth of 25 percent last year.

"Although our targeted credit growth is only 17 percent, we are confident that we can reach our profit target, especially by increasing our fee-base income," Indra told journalists after launching BII's homepage on the Internet.

BII is the first local bank to launch itself on the Internet, in cooperation with PT Aplikasi Lintas Arta (Idola). Internet users can visit BII's homepage through http://www.bii.co.id.

The homepage provides a wide range of information on its products, including real-time information on its foreign exchange rates.

It also offers its customers product services, including account opening and BII card applications. However, it cannot yet carry out money transfers or account withdrawals. (rid)