New interest rate policy will force bank innovation

New interest rate policy will force bank innovation

JAKARTA (JP): Bank Indonesia's (BI) latest move to control
interest rates will force commercial banks to be more innovative,
analysts have said.

Jusuf Arbianto Tjondrolukito, a commissioner of Bank Danamon,
said yesterday the measure would force banks to improve services
and efficiency to attract customers rather than only advertising
high interest rates.

"The purpose of this measure is to return stability to the
country's banking sector," Jusuf told The Jakarta Post.

Another bank executive who requested anonymity shared Jusuf's
view, saying private banks must formulate strategies to attract
customers.

"Hopefully, with all banks offering equal rates and with the
government's guarantee of all deposits, there will be no more
practices of elbowing each other aside by offering high interest
rates," the banker said.

Banks must now compete through the quality of their services
and products, he said.

This could be achieved by specializing in certain market
segments, a strategy little explored by local banks, he said.

He said banks which provide specialized services, such as
Islamic banks, would likely survive.

"For example, certain international banks, such as Citibank
and Chase Manhattan, have an Islamic banking division in many
Moslem countries," he said.

In its latest move to reform the country's frail banking
sector, BI has limited interest rates to no higher than 0.25
percent above the Jakarta Inter Bank Offered Rates (JIBOR) for
rupiah denominated deposits.

JIBOR is the average interest rate of the country's 20 largest
banks.

Yesterday, the interest rates of three-month deposits offered
by the 20 banks ranged between 19 percent and 23 percent per
annum.

All the banking executives interviewed here by the Post said,
however, they were not fully informed on the interest rate
restriction.

Banking analyst Rijanto Sastroatmodjo said that even with
decoys such as high interest rates, private banks would not be
able to enjoy large deposits because customer confidence had
severely eroded.

"The main problem is that public funds have become a scarcity
in private banks now," Rijanto, the chief commissioner of Bank
Servitia, said yesterday.

"No interest rate level can really bring the funds back to the
banks," he said.

He said many small banks had few deposits.

Despite a series of measures announced by the government to
rehabilitate local banks, public confidence has remained low
since the government forced 16 insolvent banks into liquidation
last November.

Jusuf said banks must project a sense of trust by providing
full and satisfactory customer services. He said they must
establish good interpersonal relations with their customers.

They must study their market and, if necessary, shift to a
more suitable and receptive market segment, he said.

Banks must also provide more options to their customers, such
as a cross selling of their products, he said.

Banks should offer services for housing and business loans and
other instruments such as securities and mutual funds, he said.

Banks which provide convenience and easy access to their
services and information would likely be able to win customer
satisfaction, he pointed out. Better information technology
systems and banking automation would be an added value, he said.
(das)