'SBI rate ready to fall below 10%'

'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.