Wahyu Rahmawati fetch a deep sigh. Her face cannot hide sadness. She has waited for years to get loan interest deduction. Unfortunately, Federal reserve (The Fed)'s action blow up Wahyu's dream. "Banks in Indonesia dont have willingnes to cut down the house loan rate even before The Fed rose," said Wahyu with sorrowful eyes, yesterday.
Wahyu charged at 13.75% for mortgage rate loan since early 2015. Wahyu's mortgage rate much higher than benchmark interest rate or Bank Indonesia (BI) rate at 4.75%. Financial regulator efforts to push down the lending rate seem failed. Definitely, the dream to enjoy credits with low interest rate is over. Low lending rate era could not happen even though President Joko Widodo has asked banks to reduce lending rates to below 10% or single digit so the economy can grow.
Based on the recent data on circulated money of BI, the banks’ credit rate in average has dropped to 12.21% as per October 2016. This only slightly decreased by 2 bps compared to the level of 12.23% in the previous month (month on month basis). As comparison, during January 2016-October 2016, the lending rate only dropped by 62 bps, while the deposit interest rate was cut by 130 bps. This is why banks in Indonesia still enjoy high margin.
Indonesia is the highest rate
In fact, Indonesia is the most highest lending rate among 10 countries in Asia. Based on World Bank' data, real lending rate in Indonesia at 12.7%, double than neighboring countries Singapore at 5.3% (See table below).
This year, the problem getting bigger because bankers has increased the deposit rate to respond The Fed’s decision to increase the benchmark rate by 25 bps to 0.5%-0.75% on 14 December 2016. The research of Mandiri Sekuritas shows that three of 12 surveyed banks have increased the deposit rate for one month and three month tenors by 25 bps to 100 bps during one month period as of 16 December 2016.
For an example, biggest private bank in Indonesia, Bank Central Asia (BCA) has increased the one-month deposit rate by 100 bps from 5% to 6% for deposits of more than Rp 2 billion. Bank Pan Indonesia (Panin) and Bank Jatim (East Java Bank) also launched the similar strategy.
On a research, which was published on 20 December, two analysts at Mandiri Sekuritas Priscilla Thany and Tjandra Lienandjaja said that deposit rate has begun to move in reverse direction. In fact, The Fed is still planning to increase the interest rate up to three times in 2017.
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 the result, bank will have less chance to cut the credit rate. “We expect that the deposit rate will further increase in 2017. Other banks will follow BCA’s strategy,” Priscilla and Tjandra wrote.
Head of Economic Risk and Financial System Group at Deposit Insurance Agency (LPS) Dody Arifianto said, the liquidity will be tighter in 2017. The liquidity will be more problematic if The Fed increases the rate of more than 75 bps. 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. Despite the credit rate has less chance to decline, FSA remains optimistic that the single digit rate can be realized. Chief Executive of Banking Supervision of FSA Nelson Tampubolon expects that the interest rates of all credit sectors will stand at one digit in 2017, except micro credit rate. “The micro credit rate is unlikely to be one digit in 2017, due to high overhead costs,” Nelson added.
| Indonesia is the highest lending rate in Asia | |
| Country | Lending rate |
| Indonesia | 12.7% |
| Vietnam | 7.1% |
| Philipine | 6.6% |
| Australia | 5.6% |
| Singapore | 5.3% |
| Hong Kong | 5.0% |
| Malaysia | 4.6% |
| China | 4.3% |
| South Korea | 3.5% |
| Japan | 1% |
| Source: World Bank, as of January 2017 | |
