Interest Rate Decrease Encourages Banking Intermediation

By : Herry Barus And Aldo Bella Putra | Saturday, September 23 2017 - 17:00 IWST

Gedung Bank Indonesia
Gedung Bank Indonesia

INDUSTRY.co.id - Jakarta - Bank Indonesia declared that the policy to cut its benchmark interest rate again this month is expected to further encourage banking intermediation.

Head of BI's Makroprudential Policy Department Filianingsih Hendarta said in Jakarta on Friday night (9/22/2017) that the decline in BI's interest rate will lower the cost of funds of banks as well as the interest rates on monetary operations and deposit rates.

"Deposit interest rates will usually be followed by lower loan interest rates, which we hope will encourage banking intermediation," said Filianingsih during a press conference.

Related to the decline in lending rates to one digit, continued Filianingsih, it depends on the efficiency of each bank and also take into account the components such as the price of funds, labor, Impairment Losses (CKPN), and others.

"Hopefully the banks can immediately complete the consolidation so that it can be more effective and efficient in financing, so hopefully the loan interest rate can go down," she said.

Meanwhile, Head of Department of Economic and Monetary Policy of BI Dody Budi Waluyo said, since January 2016 until August 2017, the interest rate of banking credit has fallen 115 bps.

Compared with BI Rate 7-day Reverse Repo Rate itself has fallen 175 bps during the period of January 2016-September 2017.

"There is still room for declining bank lending rates, and there is a time lag between the policy rate and the quarterly bank loan interest rate, which is usually in our study, the intermediation will continue through the interest rate channel," Dody said.

Based on BI notes, bank intermediation has not shown improvement. Credit growth in July 2017 was still low at 8.2 percent (yoy), although it improved from 7.8 percent (yoy) in the previous month. High credit growth occurred only in the construction, electricity, services and agriculture sectors, while the remaining sectors grew low.

Third party funds growth in July 2017 was 9.7 percent (yoy), down from 10.3 percent (yoy) in the previous month, especially in foreign currency deposits.

Looking ahead, bank intermediation is expected to improve in line with the decline in benchmark interest rates and macro prudential policy easing by Bank Indonesia, as well as progress in banking and corporate consolidation.

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