One digit credit rate hard to achieve

JAKARTA. Opportunities to enjoy single digit interest rates at the end of the year are depleting. Banks are struggling to meet their targets due to many factors, which are predicted to block the decline in credit interest rate.

Chief Executive of Banking Supervisor Nelson Tampubolon said that the banks’ interest rates still have the potential to decline in the fourth quarter. "However, it will be slightly slower than the previous quarter," Nelson told KONTAN, Wednesday (16/11).

According to the Financial Service Authority (FSA) record, the average credit interest rate currently stands at 12.23%. It only dropped 59.33 basis points (bps) since the end of 2015 to September 2016. Out of the overall rate, the working capital and investment interest rates fell by 86 bps and 76 bps to 11.62% and 11.36%, respectively

Meanwhile, consumption credit booked the average highest interest rate at 13.72%. This only dropped by 16 bps since the end of 2015.

Despite of in the downward trend, the FSA said that the target of one-digit credit interest rate is difficult to be achieved. This was caused by four factors. First, banks’ liquidity is likely to tighten until the end of the year. In the third quarter, the loan to deposit ratio (LDR) of banks has reached the level of 91.71%.

Second, bankers are also worried about the aftereffect of Donald Trump's victory in the last US presidential election. Trump’s policies are predicted to trigger capital outflows from developing countries, including Indonesia. Therefore, the bank will secure liquidity by delaying the decline in deposits interest rates.

Third, The Fed’s plan to hoist the benchmark interest rate in December 2016.

Fourth, the people’s habit, which tends to withdraw their savings at the end of the year, will contribute to the tightened liquidity. Usually, people tend to pay debts and taxes, as well as spend additional costs for Natal festival at the end of the year, said Nelson.

The potential of tightening liquidity has even prompted the banks to raise credit rates. Corporate Secretary of Bank Mandiri Hafas Rohan said, Bank Mandiri increased the credit interest rate after the bank increased the interest rates of the withdrawal of funds. Furthermore, the phenomenon of tightening liquidity at the end of year, as well as the Trump’s effect have led the bank to increase the credit rates.

Meanwhile, Bank Tabungan Negara (BTN) and Bank Permata are likely to lower the credit interest rate in the fourth quarter of 2016. “In one condition: the cost of fund drop,” said Director of Finance and Treasury of BTN Iman Nugroho Soeko.

Director of Wholesale Banking of Bank Permata Siswadi Anita said that Bank Permata may cut the interest rates of corporate loans by 25 bps. Interest rate reduction can be done gradually. However, the bank will consider the factors of cost of funds and financial quality of the debtor before reducing the credit interest rate. (Muhammad Farid/Translator)