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Insured interest rate may hike

Friday, 30 December 2016 | Nina Dwiantika

JAKARTA. The periods of the declining interest rates in 2016 are unlikely to repeat in the next year. In fact, according to the Deposit Insurance Agency (LPS), some potential risks may trigger the increase in insured interest rate or LPS rate in 2017.

LPS assess the savings rate could raise in case of capital flow reversals to the United States (US) after The Federal Reserve (Fed) raised the benchmark interest rate by 25 bps to 0.50% -0.75%. In addition, there are also the risks of fund flow reversals (repatriation) of the US corporate profits, as well as the liquidity squeeze of small banks, which had earlier raised deposit rates.

Nonetheless, the important thing is “The insured interest rate in 2017 will be parallel with the deposits rate movement,” said Chairman of Commissioner Board of Deposit Insurance Agency (LPS) Halim Alamsyah, Thursday (29/12).

In average, the banks’ deposits interest rate remains moving down, despite some banks have increased the deposits rate. LPS recorded that in average the deposits rate dropped by 2 bps from 6.07% as of November 2016 to 6.05% as of 7 December 2016. During the same period, the maximum interest savings dropped by 1 bps, while minimum interest savings dropped by 3 bps.

Halim said that the recent deposits rate rise was caused by the competition of several banks in gaining liquidity. The banks set the insured interest rate or LPS rate as the benchmark to determine the interest rate.

High LDR

To date, the LPS rate indirectly has been the benchmark for the banks to determine the deposits rate. Along 2016, the LPS rate has dropped by 150 bps from 7.75% as of January 2016 to 6.25% as of December 2016.

Halim added, the increase in deposits rate in 2017 will be depending more in the reference interest rate of BI (the Central Bank) and the level of credit bank allocation in the next year. Halim predicts, the expansion of bank credits will not be too massive in 2017, amid the effects of global economy and the expansion of Indonesia’s economy, which will remain below 5%. Therefore, the competition in gaining liquidity may not be intensive.

However, the high loan to deposit rate (LDR) may drive some banks to be more aggressive in obtaining liquidity by increasing funding rates.

President Director of PT Bank Pan Indonesia Tbk (Panin) Herwidayatmo said that the Financial Services Authority (FSA) always provides guidance on the maximum deposit rates with taking into account the insured interest rate.

Herwidayatmo stated, the banks will take advantage of the LPS rate limit to provide special interest rate. According to Herwidayatmo, in the future, the deposits interest rate will depend on market, without ignoring BI’s benchmark interest rate.

(Muhammad Farid/Translator)

Reporter: Nina Dwiantika
Editor: Yudho Winarto
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