Businesses Welcome BI’s Open Rate Policy
Beginning on March 31, Bank Indonesia will require domestic lenders to announce their prime lending rates as it tries to encourage greater competition.
The new policy requires only lenders with assets greater than Rp 10 trillion ($1.13 billion) and those offering collateral-based loans to advertise the rates they offer their most credit-worthy customers, but businesses still welcomed the move.
“For us, getting a loan is like climbing a mountain. The higher it is, the more it’s obscured by clouds,” said Sugiman Layanto, president director of Wintermar Offshore Marine, a cargo shipper. “I hope this policy will help our sector grow faster.”
The new policy requires lenders to display their prime rates in every office and branch, the print media and the main page of their Web site. Base rates for corporate, retail and consumer loans must be published, but not credit cards or micro loans.
Central bank Governor Darmin Nasution said last month that disclosing prime rates would help promote healthy competition among lenders and help customers be more informed as they shop for loans.
Sofjan Wanandi, chairman of the Indonesian Employers Association (Apindo), said businesses face tough competition as cheap, imported goods enter the Indonesia market, and banks can help businesses by providing loans that make local goods more competitive.
“We’re happy with this policy. We hope the effect can be experienced by businesses in the near future, maybe three or six months’ time,” he said.
Muliaman Hadad, a deputy governor at Bank Indonesia, said consumers were not the only parties that could benefit from the change.
“This policy can help the banks as well because they can learn from each other on how to improve their efficiency,” he said.
He added that lending with collateral was included in the first stage of the policy because calculating its costs was easier.
Among the factors going into prime rates are the cost of funds, overhead and profit margins. Wimboh Santoso, director of research and banking regulation at Bank Indonesia, said the base credit rate would be ideally less than 10 percent.
Mirza Adityaswara, an independent economist, said he agreed that competition could push down interest rates, but he also said the central bank has to boost access to credit as well, particularly for small businesses.
“Competition in the corporate sector is already good, but not in the micro lending sector. The issue in micro lending is access,” Mirza said. “Small businesses are glad to get 25 percent interest, compared to the rate they get from loan sharks.
“To enter this market, banks need higher margins to cover their costs because they have to develop a vast network to cover scatered small businesses.”