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PT Bank Tabungan Negara, the country’s biggest mortgage lender, said on Friday that it would lower its average interest rate by 0.5 percentage point next month in a bid to boost lending.

“Until now we have lowered our interest rate by 1.5 percentage points, including for outstanding loans in the non-subsidized mortgage facility, and other commercial loans,” Iqbal Latanro, president director of the state-controlled bank, told the Jakarta Globe.

Iqbal said BTN’s current average interest rate for mortgage loans was about 10 percent.

This is the bank’s second rate cut this year. The reduction is expected to help boost demand for housing loans, which in turn could help developers sell more houses. The property market is still struggling with the effects of the global crisis and demand has generally weakened, Iqbal said.

BTN plans to grow its loan book by 20 percent this year to Rp 48.84 trillion ($5.4 billion). More than 90 percent of the loans are mortgages.

A number of other banks are also looking to boost their mortgage business this year as the economy improves.

PT Bank CIMB Niaga, the second-largest mortgage lender, has cut its lending rate to an average of 9.25 percent.

But James Rompas, vice president director of CIMB Niaga, said the bank was not planning to lower its rates.

“It’s already quite low. At 9.25 percent, it’s already a 0.74 of a percentage point decrease from 9.9 percent at the start of this year,” Rompas said, adding that CIMB was targeting 25 percent growth in housing loans in 2010.

Anton Sitorus, the head of research at PT Jones Lang LaSalle Indonesia, said that if the trend toward lower lending rates could be maintained throughout the year, it would help stimulate demand in the property sector.

He said that last year, sales of small- to medium-sized homes were relatively low as middle-class consumers were still affected by the economic slowdown, prompting developers to focus on high-end houses to maintain sales.

However, he warned that the outlook for interest rates was uncertain and that the overall direction of rates was liable to change depending on the macroeconomic situation.