OJK Reveals Culprits Behind Persistent High Lending Rates in Indonesia

Jakarta, CNBC Indonesia — The Financial Services Authority (OJK) has explained the reasons behind the persistent high banking lending rates despite the Bank Indonesia benchmark rate falling to 4.75% since September 2025. OJK Executive Head of Banking Supervision Dian Ediana Rae stated that, in general, the reduction in lending rates will depend on the funding interest rate conditions or cost of funds. According to data, banking interest rates have experienced a decline. The average rupiah lending rate in February 2026 was recorded at 8.80%, a drop of 44 basis points compared to the previous year’s 9.22%, mainly driven by a 69 basis point reduction in investment lending rates. From the funding side, the weighted average rupiah third-party funds rate also fell by 41 basis points year-on-year to 2.68%, with the main decrease in deposits. She explained that the interest rate reduction is a gradual process of monetary policy transmission, depending on each bank’s strategy and cost structure, particularly related to the cost of funds (CoF). Currently, Dian said there is intense competition for large customer funds, with banks vying to offer higher deposit rates to maintain liquidity. As a result, banks face high funding costs. “The transmission of policy interest rates to the cost of funds can be delayed mainly due to the still competitive competition for deposit funds, as large depositors generally have higher bargaining power against banks,” she revealed, quoted on Monday (27/4/2026). OJK hopes that banks can optimise their funding strategies, particularly to increase the proportion of low-cost funds to create room for lending rate reductions. As is known, the BI Rate has remained at 4.75% since September 2025 to date. Generally, a BI Rate cut is followed by a lending rate reduction after a lag of several periods. Therefore, lending rates are expected to continue declining in response to the 2025 BI Rate cuts, which are projected to persist into 2026. As regulated in POJK No. 13 of 2024, OJK standardises the components of the Base Lending Rate (SBDK) calculation to enable comparisons between banks and requires banks to publicise the SBDK components through various accessible sources for all stakeholders, especially the public. This policy is expected to enhance market discipline, encourage inter-bank competition, and primarily drive lending rate reductions as a form of accelerating interest rate transmission. In addition, OJK also advises banks to gradually adjust their interest rates to align with market conditions, maintain healthy financial ratios, and avoid unhealthy interest rate competition.