With the interest rate's downward trend, Indonesia's major banks will have more room next year to expand their lending, which has been fairly low for the past two years.
Banking analysts have estimated that the easing of inflation will allow central bank Bank Indonesia to further lower its key rate by another 50 basis points before the turn of the year, to 9.75 percent from 10.25 percent at present.
They said that the lower rate might spur lending growth to 20 percent next year as compared to between 14 percent and 15 percent this year
"If the central bank further cuts the key rate to 9.75 percent next month, the lending rates at commercial banks will gradually fall to between 12 percent and 13 percent in the first quarter of this year," Djoko Retnadi, a senior analyst at state owned Bank Rakyat Indonesia, said in Jakarta last Friday.
He said that with such a lending scenario, bank loans would be much cheaper, thereby encouraging more borrowers to get fresh loans.
"If that happens, I am confident that the lending growth will grow at minimum of 18 percent in 2007," he said.
Kostaman Thayib, the director of Bank Mega's retail banking, also shared the same optimism, saying that the lower BI rate and inflation rates would trigger a demand for new credit.
He predicted that lending rates could decrease to 12 percent or 13 percent by the middle of next year.
Bank Indonesia cut its key rates in the first week of this month by 50 basis points to 10.25 percent, the fourth cut of that size since Aug. 26 and the sixth since May, when the BI key rate reached as high as 12.75 percent, on the back of the falling inflation rate.
However, not all commercial banks have adjusted their rates to BI's new rate.
The lending rate of most banks still ranges between 15 percent and 17 percent.
Mansyur Nasution, a senior executive at state-owned Bank Mandiri, the country's largest bank in total assets, said that Mandiri had lowered its prime lending rates by 50 basis points to 13.25 percent following the fall in the central bank's key rate.
He believes that with the fall in the lending rates, the bank's lending growth would be faster paced beginning in the first quarter of next year
Ryan Kiryanto, a senior analyst at the state-owned Bank BNI, also predicted that there will be around 20 percent growth in the bank's lending next year, much higher than this year's 15 percent.
Like other analysts, the Standard Chartered Bank's Fauzi Ichsan estimated early last week that the BI key rate would fall to about 9 percent and the lending rate would subsequently decline to between 14 percent and 15 percent.
The lending, he said, would grow by 20 percent as compared to between below 15 percent at present in line with the increasing demands from the customers for bank credits.
Debtors have begun actively asking for credit as business prospects seem brighter, although the interest rate is still considered to be high and have called for a decrease in the credit interest rate, he said.
He further said if the bank credit interest rate reached between 12 and 13 percent in 2007, the requests for credit would drastically increase.
With the improvement in economic fundamentals and the likely surge in the lending growth, the country's economy is predicted to grow by more than six percent, as targeted by the government.
Fauzi said that the economic growth would be supported by the consumption sector and the improvement of banking performance as a result of the fall in interest rates. (01)
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