ASEAN KEY DESTINATIONS
Bank reforms miss Indonesians
Consumers appear to have missed out on the benefits of a new central bank policy forcing major lenders to publish their prime lending rates.
Evidence shows that there has been neither a decline in the interest rates charged by banks nor has there been a significant increase in the growth of lending.
Instead, banks have used the policy, intended to foster greater transparency and competition, to cut overhead costs and fatten profit margins.
Bank Indonesia in March introduced a requirement for the nation’s 43 largest banks, about a third of the total, to publish rates for creditworthy customers.
Among the lenders are Bank Mandiri, Bank Rakyat Indonesia, Bank Central Asia, Bank Negara Indonesia and CIMB Niaga.
Banks responded to the reform by slashing costs, but banks would not say how many employees were dismissed in their push to curb overhead expenses.
Since the policy came into effect, BI data showed the lending rate was either little changed or increased among the 43 banks.
Wimboh Santoso, a director of banking research and supervision at BI, said the drop in overhead costs should theoretically help the banks reduce the lending rate they charge customers, particularly in lending to manufacturers and for working capital.
“It’s too early to say that the policy has resulted in lowering the borrowing cost to customers,” Wimboh said.
Commenting on the commercial banks’ decision to direct cost savings to bigger margins rather than passing the benefits on to consumers, Wimboh said BI would “scrutinize” it. “If banks lowered the interest rate they could disburse more loans and therefore their revenue would be relatively unchanged,” he said.
Indonesian banks calculate their prime lending rate based on the cost of funds, margin and overhead cost. The cost of funds is the interest banks pay depositors, and the overhead cost measures the efficiency of bank operations. Actual interest rates, however, depend on customers’ risk profile, factoring in their financial condition, business type, age and location.
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