Banking Between Optimism and Awareness
November 18th, 2009 - By admin - Posted in NewsMany economists say that the financial crisis currently sweeping the U.S. economy and spread to the whole world is caused by a low interest rate policy (one percent) is too long in America in the period 2003-2004. Interest rates are too low often spoil the bankers so they drop off, giving credit to the debtor or the actual project was not feasible. That is, the debtor or the project will not actually be able to pay the bank loan if mortgage interest rates increased.
Indonesia’s banks in the period 2007 until the semester I/2008 experiencing an exciting performance. At semester I/2008, with interest rates in the BI Rate is only 8 per cent and deposit the funds rate below the Bank Rate, the amount of credit as of August 2008 showed growth of 33 percent compared to August 2007. Number of problem loans has also continued to show a decrease in semester I/2008. On the one hand, this shows a positive thing, namely to increase investment activity and consumption society and spur national economic growth to 6.3 percent in semester I/2008.
However, on the other hand that high credit growth have contributed to import growth overtaking export growth. This means that there are symptoms of overheating in the economy in Indonesia semester I/2008. The increase in prices of agricultural commodities plus mining and fuel price increases are the main factors causing inflation in the year 2008. However, growth in aggregate demand beyond the supply-side growth contributed to high inflation this year, the estimated 11,5-12,5 percent.
By eliminating the symptoms of overheating the economy, Bank Indonesia tightened monetary policy in 2008. Differences in quarter monetary tightening with a quarter II/2008 is III/2008 BI rate increase since the beginning of the quarter III/2008 accompanied by absorption of excess liquidity in the interbank money market. Earlier, overnight interest rate (overnight loans) in the interbank money markets remain under BI rate of about 300 bp (or three percent) that many banks use for overnight funds used to buy Bank Indonesia Certificates (SBI). This has added cost to Bank Indonesia because they have to pay interest on SBI for something that is not necessary. In fact, there may be before the bank provides loans to corporations with a weekly source of overnight money market funds. Of course, this is banking practices that are not careful.
Credit growth was 33 percent growth is not accompanied by a third-party funds, which grew only 15 percent. It appears that some banks argue that they must be able to capture funds from the bond market, interbank money market, or from the issuance of debt securities abroad. However, it turns out the international money markets and bond markets since the beginning of 2008 was not friendly, since international banks were hit by losses from subprime portfolio credit logjam.
With dinaikkannya overnight interest rates are slightly higher than the BI Rate, several banks have to get funds from the deposit market by raising deposit interest. The higher the loan to deposit ratio (LDR) of a bank the higher the dependence on bank deposits will be. Due to the minimum compulsory deposits (GWM) medium banks in Indonesia is currently 8-9 per cent (of total third party funds) is for banks with LDR already above 90 percent, they have to get funds to provide a deposit rates interesting. In my opinion, banks with LDR above 90 percent have a ratio that is too high. LDR above 90 percent can be tolerated only if the bank has obtained long-term funding of the debt securities markets or long-term credit.
Foreign banks are also included in the category that must capture the cost of deposit funds because they do not have many branches in Indonesia. That’s what causes sudden deposit rates several medium and small banks rose significantly in August and September to 13-14 percent, far above the Bank Rate is currently 9.25 percent.
For banks with high interest credit portfolio such as micro-credit portfolio, raising deposit interest costs do not affect much the level of profits. However, for banks with low-interest loan portfolios as mortgage (mortgage) or an increase in corporate credit cost would lower deposit interest rates fairly significant margin.
Fortunately, Bank Indonesia has been quite responsive. Shake the world financial markets last week and disbursement of liquidity by central banks and European Americans have given credence to Bank Indonesia to open the taps Indonesia liquidity to banks. If the war left interest rates, bank deposit rates of banks will go up so that interest on loans will jump from Indonesia earlier in the semester I/2008 only 11-12 percent, could be 16-18 percent. If this occurs, certain number of problem loans will increase.
The dilemma faced by Bank Indonesia is currently not possible to loosen monetary policy if inflation is still high. Foreign investors holding government securities would not like to see the Bank lowered interest rate if inflation is still high. In addition, the excessive liquidity could be used to run speculation in the foreign exchange market. Thus, banks do not rush to have hearts that last week poured BI liquidity through repo facility. Repo facility is liquidity support to the market. Drugs that permanent, banks with high LDR to reduce credit growth and net third-party funds permanent.
Let us hope that the decline in commodity prices, mining and agriculture that are currently happening will be able to reduce inflation in the month of October to December so that the BI does not need to raise rates higher BI rate again.
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