0 Kadin Decries High Lending Rate

While the Indonesian government is seeking greater participation from domestic businessmen to boost the economy, the Indonesian Chamber of Commerce and Industry voiced concerns over the unfavorable lending rate in the banking system that has hampered their role. Known as Kadin, the strong private lobbying group is made up of the country’s influential business figures. Suryo Bambang Sulistyo, the chairman of Kadin, said the government needs to bring more to the table. 

While highlighting the main constraints for domestic investors, like dilapidated infrastructure and high labor costs, Suryo said that local businesses have concerns over the high interest rates set by domestic lenders. Because of this, he added, many domestic businesses seek lending abroad. “Private sector lending [from overseas] was high, at around $123 billion,” he said. He said that the main reason behind the high interest rate is that the Indonesian banking sector is highly concentrated in its six largest banks: Bank Mandiri, BRI, BCA, BNI, Bank CIMB Niaga and Danamon. 

“They dictate the interest rates,” he said. “We need more lenders to compete so that lower interest rates can be offered.” Bank Indonesia came up with measures to get lenders to cut their rates. Among them was the requirement for the country’s banks to announce their prime lending rates for corporations, retailers and consumers beginning in March 2011. The central bank thought that such an announcement would encourage more transparent competition by banks to attract customers, which in turn would push down interest rates overall. 

Since the implementation, the average interest rates for working loans and investments have dropped by at least 55 and 86 basis points, respectively, to 11.69 percent and 11.30 percent as of October 2012, according to the latest available central bank data. The average interest rate among consumer loans experienced the biggest decline, dropping by 119 basis points to 13.6 percent. The central bank plans to require banks to announce similar rates for small- and medium-sized companies this month. 

Chatib Basri, the chairman of the Investment Coordinating Board (BKPM), said domestic companies must double their investment in the coming years, or miss out on the opportunities that the country has to offer. According to BKPM data, domestic investment stood at Rp 65.7 trillion in the first nine months of last year, accounting for approximately 28.5 percent of the Rp 229.9 trillion invested in that period. Bank Indonesia’s benchmark has kept its policy rate — the benchmark lending rate — at 5.75 percent, the lowest in the country’s history. 

Bank Indonesia spokesman Difi A. Johansyah said the benchmark rate had more of an impact toward the saving rate than the lending rate. He said that the recent banking policy to increase the minimum capital requirement would create efficiency, thus easing the interest rate. “Efficency can be improved by adding more capital. With strong capital, competition will tighten. Lenders will compete to provide the cheapest [credit],” Difi told Investor Daily on Thursday.

source : the jakarta globe