ASEAN KEY DESTINATIONS
Financial authority gets bolder on time deposit interest rate cap
Indonesia: The Financial Services Authority (OJK), starting next month, will set a maximum limit for time deposit interest rates as part of efforts to help lenders cut the cost of funds and, eventually, lower the lending rate.
OJK commissioner for banking supervision Nelson Tampubolon said the OJK would set the new maximum limit at 100 basis points (bps) above the Bank Indonesia (BI) benchmark rate for lenders with core capital between Rp 5 trillion (US$373.8 million) and Rp 30 trillion, known as BUKU III lenders.
The limit for BUKU IV or banks with core capital above Rp 30 trillion will be set at 75 bps.
With the BI rate at 7 percent right now, this means the time deposit rate for BUKU III lenders will be capped at 8 percent and the time deposit rate for BUKU IV lenders will be capped at 7.75 percent.
The new percentages are lower than the existing time deposit rate cap, which was first imposed by the OJK in October 2014 when the BI rate stood at 7.5 percent.
In the 2014 measure, the OJK set its cap at 200 bps above the BI rate, or 9.5 percent for BUKU IV lenders, while the cap for BUKU III lenders was set at 225 bps above the BI rate, or 9.75 percent.
No limit has been set for BUKU I and II lenders as they are believed to follow the rate movements of major banks.
Nelson said the OJK would closely monitor banks that still offered time deposit rates above the BI rate and the Deposit Insurance Corporation (LPS) rate.
The management of such banks will be required by each of their OJK banking supervisors to limit the maximum time deposit rates in accordance with the new percentages set by the agency.
“We will impose the new measure as soon as possible, next month at the latest,” he said on Monday.
Nelson said the OJK would not cap lending rates, but its banking supervisors would request each of the banks they supervise to either maintain or reduce net interest margins in order to help reduce lending rates.
OJK chairman Muliaman D. Hadad said previously the agency would also provide incentives to banks that were able to bring down their net interest margins. The incentives will include providing easier pathways for opening branches or launching new products.
In a bid to stoke the economy, the OJK has joined forces with BI and the government to promote the reduction of bank lending rates to single digits by the end of this year, from 10 percent plus at present.
Nelson said the OJK was expecting that the government would soon issue the regulation for its recently announced plan to cap rates at 5 percent for time deposits owned by the government and state-run firms.
This plan followed the OJK’s observation that the government and state-run firms owned a large amount of time deposits and often acted as big clients, demanding time deposit rates of 8 to 10 percent, keeping costs of funds in state banks high.
Separately, Indonesian Employers Association (Apindo) chairman Hariyadi Sukamdani said business owners expected that the new measures prepared by the government, BI and the OJK would lower the costs of funds, which often pushed time deposit rates above the country’s inflation rate.
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