The Fed’s rate has low effect to banks liquidity

JAKARTA. The Fed Funds rate has increased by 25 bps, Thursday (15/12). However, Deposit Insurance Agency (LPS) estimates that this will not bring significant impact to Indonesia’s economy, including the banks liquidity.

“The effect will not be significant if the Fed Funds rate moves around or below 50 bps,” said Head of Economic Risk and Financial System Group of LPS Dody Arifianto. If The Fed’s policy have significant impacts, BI will definitely launch some monetary policies to maintain domestic economy stability.

Banking sector tends to wait for BI’s policies. “We will just change our strategies in funding and lending if BI reacts,” Dody added, Thursday (15/12).

However, Director of Risk Management and Compliance of PT Mandiri Tbk Ahmad Siddiq Badrudin said that the bank is likely to maintain the deposit interest rate to minimize capital flight risk. “There will be capital flight risk if we reduce the rate, while the US increased the rate,” Siddiq said.

Nevertheless, the bank will continue to monitor Te Fed’s strategy in the next year, particularly in terms of how many times the Fed Funds rate will be increased.

Based on KONTAN records, the loan to deposit rate (LDR) of ten major banks as of October 2016 has increased by 32.92 bps to the level of 88.79% compared with the same period in 2015. Eight of the ten banks booked the LDR portion at the level of above 90%.

During the period, PT Bank Central Asia Tbk (BCA) booked the lowest LDR among the ten banks, followed by Bank Permata at the levels of 75% and 81%, respectively. As comparison, the LDR of the ten banks as of September 2016 had increased by 477.51 bps to the level of 91.28% compared with the same period in 2015.

LDR will increase
The management of BCA predicted that the LDR will slightly increase at the end of 2016, as usually the credit will significantly grow ahead of the end of year.

Corporate Secretary of BCA Jan Hendra said that in general BCA has sufficient liquidity conditions. “To date, the third party funds (DPK) grow better than the credit growth,” Jan said.

The proper liquidity conditions are supported by the large amount of tax amnesty funds flows from abroad. In the early December, more than Rp 10 billion of repatriation funds have flown to BCA. The amount will be likely increasing ahead of the end of the second phase of tax amnesty at the end of December 2016. (Muhammad Farid/Translator)