BANKS' LENDING ACTIVITY STILL LOW

By Andi Abdussalam

Jakarta, May 2 (ANTARA) - Banks' lending activity in the country is still low because banks are still reluctant to aggressively provide credits for fear of non-performing loans while demand for credits is also declining due to the impact of the world economic crisis which also affects Indonesia.

        "A recent survey on banks indicated weak credit demand and lack of interest of banks to provide credits," director of banking arrangement and research affairs of Bank Indonesia (BI/the central bank), Halim Alamsyah, said early this week.

        Demand for credits is weakening as the global economic crisis has weakened the country's economy as reflected in the slowing down of Indonesia's export-import activities and low people's purchasing power.

        In the meantime, banks are being discouraged to aggressively provide credits in face of increasing credit risks and become more prudent in channeling credits amid the economic crisis.

        As a consequence of low demand for loans and credit contraction, third party funds continue to accumulate and grow at banks in the last several months. This is also due to the fact that deposit interest rates are still attractive to depositors and their confidence in banks is relatively high.

        "In a condition like this where uncertainties are high, banks prefer to maintain their financial soundness," Alamsyah said. He hoped that banking business would return to normal in the second semester of this year.

        In an effort to reinvigorate the banking business, banks have to cut their lending rates and lower deposit interest. In this case, it is expected that state-owned banks would pioneer the lowering of their interest rate where private banks would follow suit.

        However, State Enterprises Minister Sofyan Djalil said his ministry could not force state-owned banks to lower their interest rates because it was a matter in which each bank could have its own considerations.

        "That's the banks' affair, and if they are forced (to cut interest rates), state-owned banks will lose their competitiveness," Djalil said recently. Banks so far have cut their interest rates only slightly following the decision of Bank Indonesia (BI) to lower its benchmark (BI Rate) further.

        The central bank since January this year has cut a total of 175 basis points or 1.75 percent of its benchmark rate to 7.5 percent. However, responses of other banks are still slow. Since January banks have only cut about 0.05 percent of their interest rates.

        After all, banks are also unable to lower their rates because depositors, particularly the big ones, still ask for high interest, which if not fulfilled would remove their funds to other interesting places.

        In order to help lower lending rates, businessmen saving funds at banks should not ask for a deposit interest rate above the 7.75 percent guaranteed by the government.

        "Businessmen would always ask for a low interest rate when they borrow money and a high one when they save it. Please you conglomerates should not ask for high saving interest rates so that lending rate could be lowered," president director of state-owned Bank BRI Sudaryanto Sudargo said.

        He said that demand for high saving interest by big-time businessmen was the main cause why the lending rates so far were going down very slowly, in spite of the fact that Bank Indonesia BI had aggressively lowered its benchmark rate. This caused fund costs to remain high.

        Competition among banks to maintain high interest rates is also fueled by the issuance by the government of state debentures (SUN) and Islamic bonds (Sukuk) which carry an interest rate of 10-12 percent. This created difficulties for banks to lower their deposit interest rates.

        It is expected, however that BI would continue to cut its benchmark which analysts predict would reach 6.5 percent at the end of this year. Moreover, the country has undergone deflation. The Central Board of Statistics (BPS) announced on Friday that the country had experienced a 0.13 percent deflation in April 2009.

        In this regard, state-owned Bank BNI will soon respond to the positive trend by planning to cut its deposit interest rates in the first semester of this year.

        "We hope this year that our net interest margin (NIM) would be lower than that of last year, namely from 6.3 percent to a range of 5.5-6.0 percent," Bank BNI President Director Gatot Suwondo said on the sidelines of the annual meeting of the Asian Development Bank (ADB) in Bali on Saturday.

        He said that BI rate could reach 7.0 percent up to the end of the year and this would drive down banks interest rates. In the meantime, Bank BNI's Treasury and International Affairs Director, Bien Subiantoro said BNI had plans to cut the interest rate of consumer credits first from 16 percent to 14 percent before it cut its corporate credits from 13 percent to 11 percent.

        "We hope the interest rates would have been lowered in the first semester of this year," he said.***1*** (T.A014/A/HAJM/14:15/a/f001) (T.A014/A/A014/A/F001) 02-05-2009 14:30:56