BANKERS SEE PROSPECT OF CREDIT EXPANSION

By Andi Abdussalam

Jakarta, Jan 19 (ANTARA) - Despite the impact of global financial crisis, bankers predict that credits would expand by 20 to 22 percent in the next two or three months following the government's decision on January 15 to announce cuts in fuel oil prices that helps lower inflation.

        "The declining inflation would lead Bank Indonesia (BI) to lower its benchmark rate. We believe that credit interest rates could be lowered in the coming two or three months as there is a clear prospect for that," Kostaman Thayib, retail banking director of PT Bank Mega said here on Monday.

        Given the downward trend in the country's inflation rate, Bank Indonesia's benchmark interest rate could be lowered at a range between 7.5 percent and 8 percent.

        "We are optimistic the BI interest rate will reach 7.5 percent -8 percent at the end of the year and stimulate national economic growth," Kostaman Thayib said.

        Earlier, chairman of the National Banks Association Perbanas, Sigit Pramono said the banking interest rates could be lowered if BI cut its benchmark rate and if it was followed by the lowering of the interest rates of third party funds such as deposit, demand deposit and saving.

        "The cost of funds should go down first before banks could lower the interest rates of their credits. The cost of funds is the interest banks have to pay for third party funds such as deposit and saving," Sigit Pramono said.

        The interest rates of the banking credits will automatically go down if banks' cost of funds is lowered because they are forced to compete with each other.

        According to Kostaman Thayib, banks have now begun lowering their interest rates on third party funds by about 0.5 to 1 percent, and are expected to cut interest rates on credits next.

        "So it is very likely that banks will also lower their interest rates on credits which at present range between 15 percent and 19 percent," he said.

        He said that credit interest rates were expected to go down so that credit expansion could be boosted and economic growth which was set this year at 4.5 to 5 percent could be ignited.

        "We are optimistic that the credit interest rates could be lowered in the coming two or three months," he said. After all, the inflation in January tended to drop which would encourage Bank Indonesia to cut its benchmark rate which at present is about 8.75 percent, Kostaman Thayib said.

        He said that if banks' credit interest rates were lowered, banks would increase the amount of credits for customers by about 20 to 23 percent in the second semester of this year. The economic growth meanwhile will be encouraging if the BI rate is already lowered to 7.5-8 percent at least at the end of this year.

        Kostaman Thayib predicted that the general elections in 2009 would not lead to the rise of turmoil in the market because it was believed that the government would be able to organize peacefully.

        The banker also called on banks to extend more credits if BI cut its rate. With low interest rates, the amount of non-performing loans would also be small.

        "We are optimistic that the credit growth this year will remain big even though banks tend to be prudent in extending credits the first semester," he said.

        After all, given the downward trend in the country's inflation rate, BI's benchmark interest rate may range between 7.5 percent and 8 percent.

        "We are convinced the BI interest rate will reach 7.5 percent -8 percent at the end of the year and stimulate national economic growth," he said.

        He said that BI's inflation target of 6.5 percent - 7.5 percent was realistic enough. "So, the 6.5percent -7.5 percent target is most likely to be achieved," he said.

        Kostaman said inflationary pressures had eased, and this would enable BI to lower its benchmark rate in order to boost economic growth.

        "A further cut in BI Rate is urgently needed as an effort to stimulate the real sector," he said. BI should be able to lower its benchmark rate from the present 8.75 percent to 8 percent in the first semester of this year.

        "To go down further to 7.5 percent, I think BI can do it but there are many conditions that must be met before it can be lowered further to 7.5 percent," he said.

        He said that banks customers were now waiting for BI to lower its rate so that their banks would also follow its step to lower their interest rates. Banks now have not yet cut their interest rates because they are still waiting for the BI rate to go down.

        If banks' interest rates are cut it will boost debtors' demand for banking credits for the expansion or revitalization of their businesses which have not yet running well.

        Perbanas chairman Sigit Pramono however said that banks needed three to six months before they could cut their credits interest rates after BI lowered its benchmark.

        "The best thing to measure before lowering banking credit interest rate is to see businesses in the real sector whether they are now willing to expand or to increase production. If they will, that means that they will need funds from the banks," Pramono said.(T.A014/A/A014/Z002) 19-01-2009 21:50:03