Bank Indonesia Sets New Loan-to-Deposit Ratio In Push to Spur Lending and Growth
Dicky Kristanto & Aditya Suharmoko
Jakarta. Bank Indonesia said on Thursday that it would set the loan-to-deposit ratio for banks at between 75 percent to 102 percent, linking it to the banks’ reserve ratios in a move to boost lending and drive economic growth.
The central bank had previously said that banks that did not meet the LDR would be penalized by having to place more reserve funds with it.
The country’s commercial banks are far keener to place their money in bonds and Bank Indonesia bills, known as SBIs, rather than risk their funds by lending to companies.
“The range [of 75 percent to 102 percent] is manageable for banks. Below 75 percent means banks won’t be encouraged to lend; and above 102 percent may cause a bank’s capital-adequacy ratio to drop,” said Juniman, an economist at PT Bank International Indonesia.
The central bank previously used a similar LDR regulation, forcing banks to place more reserves with it if the LDR was below a certain figure.
That regulation was revoked in 2008 as banks faced tight liquidity because of the global financial crisis.
Juniman said the new LDR regulation might be ineffective, considering that demand for bank loans was still relatively weak.
Bank Indonesia said last week that as of July 16, outstanding bank loans had grown nearly 20 percent.
While loan growth reached 30 percent in 2008, the pace slowed to just 10 percent last year.
“Companies have other financing sources, like rights issues or borrowing from their holding companies,” Juniman said. He added that bank lending would remain low if lending rates remained high.
The central bank has also struggled to get lenders to lower their rates, despite holding its own benchmark rate at a record low 6.5 percent since last August.
New central bank Governor Darmin Nasution said last week that it would also issue a regulation prompting banks to disclose their “prime lending rate” to be more competitive.