'SBI rate ready to fall below 10%'
The Jakarta Post, Jakarta
Bank Indonesia Governor Burhanuddin Abdullah said on Monday that the interest rate on the central bank one-month SBI promissory notes was ready to fall to below 10 percent this week or next week.
He said that the lower benchmark rate would allow banks to further cut down lending rates to make borrowing more affordable for the corporate sector.
"The market still wants the SBI rate to go down. I think it can (fall) to below 10 percent this week or next week," Burhanuddin said during a workshop on banking.
The one-month SBI rate declined to 10.07 percent during last Wednesday's weekly auction from 10.27 percent previously.
The central bank has been trying to guide its interest rate lower amid a weak inflation environment and a stronger exchange rate of the rupiah against the U.S. dollar. Bank Indonesia sets the benchmark rate based on bids at the weekly auction.
The SBI rate was hovering at more than 13 percent in January of this year.
The fall in the SBI rate would not only help increase bank lending to the corporate sector, but should also ease the government's burden in servicing its huge domestic debts resulting from the costly bailout of banks during the late 1990s financial crisis.
The higher loan volume to the corporate sector, and the lighter government burden in repaying debts should help push economic growth, which is projected at 4 percent this year. Such meager growth rate, however, is deemed insufficient to decrease the massive unemployment in the country.
Analysts have been critical of the aggressive cut in the SBI rate, as loan volume to the corporate sector remains small while interest rates on loans remains relatively high.
Burhanuddin said that some banks have already cut their lending rates to around 17 percent from more than 20 percent, but the problem was that many companies particularly large ones were still reluctant to borrow more money, as they were still either in a consolidation process or restructuring their old debts.
"There are already many banks which have lowered their lending rates, but the problem is that businesses can't absorb (the loans)," he said.
Burhanuddin said that the central bank was considering steps to ease rulings on lending to help revive the intermediary role of the banking industry.
He said that Bank Indonesia would review the ruling which limits banks in purchasing loan assets from the Indonesian Bank Restructuring Agency (IBRA).
Elsewhere, Burhanuddin said that the condition of the country's banking industry through the first half of the year had continued to improve as reflected in the strengthening of the capital adequacy ratio (CAR) to an average level of 24 percent in April from 22.5 percent at the end of last year.
CAR is the ratio between capital and risk-weighted assets. Bank Indonesia's minimum CAR requirement is 8 percent. The higher the CAR, the healthier the bank is.
Meanwhile, non-performing loans (NPL) during the same period declined to 0.4 percent from 2.1 percent.