HARD TO EXPECT LOW CREDIT INTEREST IN 2010

By Andi Abdussalam

Jakarta, Feb 18 (ANTARA) - While the government hopes for more credit expansion to stimulate the real sector and boost economic growth this year, banks are still facing problems with lowering their lending rates.          Analysts say that inflation in 2010 is expected to be higher than that in 2009 while banks will still wait and see, parking their money with Bank Indonesia (BI/the central bank) because they still could enjoy a higher spread.          "Banks will still be reluctant to cut their interest rates because they are still facing high risks. I am not sure if they will lower their interest rates," M Chatib Basri, researcher of the University of Indonesia's Institute of Economic and Social Research (LPEM UI) said here on Thursday.          In addition, BI's policies are not yet able to facilitate good distribution of funds into the banking system because it still applies inconsistent polices. Banks are facing difficulties to lower their lending rates because the central bank adopted inconsistent policies.         "BI has to correct its monetary policies which are inconsistent," Purbaya Yudhi Sadewa, analyst of the Danareksa Research Institute, said meanwhile. He said that BI issued policies aimed to slacken money supply to the banking system but in reality the policies adversely resulted in more tightened money distribution, thus BI absorbing the money from the banking system.          When BI lowered its key rate it should be able to slacken the distribution of money to the banking system. However, what happened was that the money was adversely absorbed from the system. "This causes banks to maintain the rates and reluctant to lower cut them," he added.          With these conditions, banks which are still able to enjoy a high spread, would continue to park their money with BI, because thereby, even if they do nothing else but play golf, they will gain  benefit.          Although the money is parked with BI, yet the threat of inflation would remain to loom. University of Indonesia (UI) researcher Chatib Basri predicted that in 2010 economic growth would be at between 5.5 percent and 6 percent while inflation at 6 - 7 percent.          He said  inflation in 2010 would be higher than in 2009 in line with global economic improvements which would generate greater demand for commodities. On the other hand, the production capacity is still lower than the increasing demand. The expected rising inflation will cause banks to wait and see.          "Prices of commodities and oil at home and abroad are now on the rise. This will boost inflation to a rate higher than that in 2009," he said.           Basically, prices at present are still within the stable range. According to Vice President Boediono who made a field observation on Thursday, the prices of various basic necessaries in the country are now quite stable, except that of sugar which has slightly increased.          "After visiting a number of markets and holding dialogs with traders, I can say that the prices of various commodities are still stable," the vice president said after observing three markets, namely Kramat Jati, Pasar Induk Beras Cipinang and Jatinegara.          Inflation is indeed only one of the factors that cause banks to wait and see before they could cut rates. After all, they are still able to enjoy a high spread if they deposit it with BI. This is regardless of the fact that BI has drastically cut its key rate from 9.5 percent in 2008 to 6.5 percent at present.          According to Yudhi Sadewa, data show that BI rate continued to go down but the funds absorbed by the central bank also tended to increase. In October 2008, when the BI rate was 9.5 percent, outstanding BI certificates (SBI) was recorded at Rp105 trillion.          However,  at present when the BI rate is already lowered to as low as 6.5 percent, the outstanding SBI even rose to Rp250 trillion.          In the meantime funds absorbed by BI through market operations also showed an upward trend. In October 2008, absorbed funds through the open market operations were Rp199.342 trillion, But in January 2010, the amount had reached Rp315.420 trillion.           He said that by reducing the amount of funds deposited at BI and supplying them to the banking system the banking lending rates could be lowered through market mechanism.          Yudhi Sadewa said that BI could lower its outstanding SBI funds through SBI auction with a lower rate than the rate of the SBI which had fallen mature, for example, if a due SBI was worth Rp50 trillion, then the SBI could be auctioned at Rp20 trillion.          "So, there will be Rp30 trillion that could be returned to the banking system," he added.          Thus, banks would be able to extend more credits to businesses, particularly the real sector. In this case, credit interest rates are expected to be lower.          According to Chotib Basri, one of the efforts that could be made to lower the interest rates is to optimize the Credit Bureau Affairs of Bank Indonesia, particularly with regard to the provision of information on debtors for banks.          "The role of BI's Bureau of Credit Affairs should be optimized so that banks would be able to get information and see which customers are facing risks. This would enable banks to convince themselves about customers who really need credits with lower credit interest rates," he said.          The government is targeting increase credit expansion this year to a level higher than that in 2009 which was 13 percent in line with the interest rate that had dropped to 11 percent - 12 percent from above 16 percent previously.          "I have already talked with the banking community that nine percent interest will still be difficult to achieve in view of the cost structure like interest on deposits which is still high. So 11 percent is the most realistic figure," Industry Minister MS Hidayat said.     (A014/A/HAJM/B003)