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NEWS UPDATES Asean Affairs        24 January 2011

Indo banks should earn less

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Commercial banks must boost their efficiency and cut lending rates to boost economic growth, Bank Indonesia governor Darmin Nasution said on Friday.

"Indonesian banks charge too high interest rates to their customers because they take too much profit and are not efficient. Our banks' efficiency is the lowest among the Asean-5 countries," he said. Indonesia, the Philippines, Malaysia, Singapore and Thailand make up Asean-5, the five largest economies in Southeast Asia.

The ratio of operational costs and revenue (BOPO) and the net interest margin in Indonesia are 81.6 percent and 5.8 percent respectively, Darmin said. Net interest margin is the difference between the interest rate banks charge their customers and the interest they pay to customers. It measures the return on a bank's investments relative to its interest expenses.

Darmin said BOPO ratios stand between 31.7 percent and 73.1 percent in other Asean-5 countries, while NIM ratios stand between 2.3 percent and 4.5 percent.

"I am interested in efficiency and hope banks can cut their net interest margin ratio. I think efficiency is the key to unwinding the complexity of intermediation, which in turn could boost lending and economic growth," Darmin said.

CIMB Niaga president director Arwin Rasyid said banks in Indonesia determine their lending rates after taking into account the cost of funds, overhead costs, risk premiums and interest margin. this year.

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