Banks facing liquidity squeeze

JAKARTA. The banks are likely to struggle to boost the credit allocation in this year, due to the liquidity squeeze.

This reflects on the increasing loan to deposit rate (LDR). Financial Service Authority (FSA) expects that as of the end of 2016, the LDR may even hit 93.09% or above the safety limit of 92%.

In referring to banks’ business plan (RBB), the FSA expects that the LDR in 2017 will even higher at the level of 94.18%, which reflects a liquidity squeeze.
The liquidity squeeze might be caused by the target of credit growth, which was higher than the third party funds. According to the FSA, the data of RBB showed that in average the credit and third party funds grew by 13.25% and 11.94%, respectively.

Furthermore, The Fed’s plan to increase interest rate in three times may trigger capital outflow from financial market so that increasing liquidity pressures. As information, The Fed increased its interest rate by 25 bps to 0.50%-0.75% in December 2016/ “The liquidity risks will become a concern in this year,” said Director of Financial and Treasury of Bank Mandiri Pahala Nugraha Mansury.

According to Pahala, the inflow of repatriation funds may minimize the liquidity risks. Likewise, Chief of Commissioner Board of FSA Muliaman D Hadad is optimistic that the repatriation funds can relax the liquidity.

Deputy Commissioner of Banking Supervision at FSA Irwan Lubis said that as of 27 December 2016, the repatriation funds were amounting to Rp 89.6 trillion. Most of the funds, as much as Rp 88.2 trillion were deposited in gateway banks, while the rests were spread in investment managements.

Banks are also exploring to issue bonds to secure the liquidity. For an example, Bank Tabungan Negara (BTN) will issue a worth of Rp 6 trillion bonds in 2017. “Our liquidity improved, thanks to synergies with some state owned enterprises (SOEs),” said President Director of BTN Maryono. (Muhammad Farid/Translator)