'Private banks will follow state banks move to cut rates'

JAKARTA (JP): Bank Bali president Rudy Ramli forecast yesterday that private banks would follow the state banks' move to reduce national interest rates.

Despite the reserve requirement increase from 3 percent to 5 percent in April, Rudy said, commercial banks would try hard to cut their lending and deposit rates.

"If Bank Indonesia (the central bank) has tried to bring the rates down, would you still maintain the current rates or even increase them?" Rudy asked.

He said the central bank had taken steps to lower interest rates through several instruments, including reducing the interest rates of Bank Indonesia Certificates.

The certificates' annual interest rates had dropped from more than 13 percent in early 1996 to about 12.5 percent at the end of the year.

The seven state banks pioneered a national interest rate cut late last year by cutting their deposit rates by between 0.5 and 1 percentage points.

Interest rates on one-month and three-month deposits now stand at 14 percent and on six-month and 12-month deposits they are 15 percent -- except those offered by publicly listed Bank Negara Indonesia (BNI) 1946. BNI's rates are 13.5 percent and 14.5 percent respectively.

Following the state banks' interest rate cut, Rudy said, Bank Bali had cut its deposit and lending rates by 1 percentage point late last year.

Bank Bali's interest rates are now 14 percent on one-month and three-month deposits and 14.5 percent on six-month and 12-month deposits. Its prime lending rate is 19 percent.

"Later this month or next month, we will again cut both our lending and deposit interest rates by 1 percentage point," Rudy said after awarding scholarships to 54 students from several universities.

Bank Bali's deposit rates are now the lowest among private commercial banks. Interest rates at other leading commercial banks mostly stand at 15 percent for three-month deposits and 16 percent for six-month deposits.

A debate on high lending rates was sparked last year by State Minister of Research and Technology B.J. Habibie who suggested that domestic commercial banks halve their interest rates.

He suggested commercial banks reduce interest rates to the lowest possible level and then, if there were negative impacts, increase them again.

Most economists, including Soemitro Djojohadikusumo, totally rejected Habibie's suggestion, arguing that it was totally unfeasible.

Responding to the debate, the government said it would not take any drastic measures to reduce interest rates but would follow market mechanisms.

The Bank Indonesia governor said earlier that the central bank would continue to influence the market through its market- friendly instruments so that interest rates could be reduced further.

Economists questioned the readiness of private banks to cut interest rates this year considering that they would be forced to deposit more money at the central bank to meet the reserve requirement increase next April.

Performance

Ramly reported yesterday that his bank had recorded an unaudited after-tax profit of Rp 125 billion (US$52.4 million) for last year, up from Rp 91 billion for 1995.

He projected a similar increase in net profit this year.

The bank plans to open about 100 new branches and offices this year in 22 cities where it already operates. It also plans to sell some of its branch offices which do not contribute much income.

By mid-last year, the bank was ranked sixth in terms of assets and second in terms of return on equity among the country's private commercial banks. Its assets were worth Rp 6.6 trillion at the end of last June. (rid)