Indonesian Banks “Held Hostage” On Interest Rates By Big Clients: Central Bank
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Bank Indonesia (BI), Indonesia’s central bank, are increasingly worried over how some large depositors are currently holding banks “hostage” over interest rates, reported the Jakarta Post on Tuesday, with 99 percent of the country’s banks believed to be unable to lower their lending rates for businesses.
Bank Indonesia (BI), Indonesia’s central bank, are increasingly worried over how some large depositors are currently holding banks “hostage” over interest rates, reported the Jakarta Post on Tuesday, with 99 percent of the country’s banks believed to be unable to lower their lending rates for businesses.
According to BI governor Darmin Nasution, Indonesian banks presently offer special high-level interest rates to their larger depositors, with the increased expenditure compensated by proceeds from higher lending rates levied on businesses, including small-scale enterprises.
This unfortunately hurts businesses’ ability to invest, claimed Nasution, who slammed local banks for being too greedy in reaping profits by imposing high interest rates for businesses, while keeping their rich clients happy.
“Only a small percentage of bank clients have significant amounts of funds. Therefore, they have huge bargaining power,” said Nasution.
[quote]“If a depositor has funds of between 1 billion rupiahs ($106,000) and 10 billion rupiahs, banks will have no problem letting him go. But when he has 5 trillion rupiahs, then he can shake down any bank.”[/quote]“Mid-scale and large-scale businesses need to borrow from banks to invest. But if lending rates stand at 22 percent, businesses are reluctant to borrow,” he added.
Presently, Indonesian banks offer a rate of at least 8 percent to their big depositors, well above the usual rate of 5.8 percent annually.
The average lending rates for investments, on the other hand, stands at 11.29 percent, while interest for working capital purposes is at 11.83 percent.
These figures are a stark contrast to BI’s own decision on Tuesday to leave its key interest rate at a record low of 5.75 percent.
BI’s move would seemingly mirror similar action taken by Asian central banks recently amid the growing economic slowdown, as the country aims for a low interest rate for investment, comparable to those of neighbouring countries such as Malaysia, Singapore and Thailand.
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[quote]”The central banks in China and Australia have already cut rates, and with inflation abating everywhere in Asia bar India and with downside risks to the growth outlook, I suspect that most other Asian central banks have an easing bias,” said Rob Subbaraman, Asia chief economist at Nomura International, to the Wall Street Journal.[/quote]Nevertheless, high lending rates from the country’s banks mean that Indonesia’s loan to gross domestic product (GDP) ratio remains low at 29 percent, compared to more than 100 percent in Malaysia and China.
