Bank Indonesia Urges Banks to Cut Operating Costs to Ease Lending Rates

“Indonesian banks are inefficient, because remains higher by around 100-150 basis points,” he concluded.

Indonesia’s banking industry is currently having difficulty in lowering its lending rates even though BI’s benchmark interest rate has dropped to 4.25 percent.

The reason is operational cost is high so that reducing lending rates is difficult for banking industry players to do.

“[Banking players] should be able to lower cost of fund. Lest the cost of fund is reduced, but lending rate is not dropping fast because the operating costs cannot go down,” said Mirza Adityaswara, Senior Deputy Governor of Bank Indonesia, in Jakarta, Friday (10/20/2017).

According to Mirza, the benchmark rate cut should be able to be followed up by lowering deposit and credit interest rates, especially if the operating expenditure and operating cost is low.

“Since 2016, BI has lowered interest rates, in total by 200 basis points or 2 percent,” he said.

Meanwhile, deposit interest has dropped by 160 basis points or 80 percent of total reduction of BI’s benchmark rate in the same period. “The lending rates have not been in line, because the decline is still low,” he said.

He added that the ratio of operating costs to the total assets of Indonesian banks is currently around 3 to 3.5 percent. Meanwhile, the same ratio for banks in other ASEAN countries is only about one to two percent