•    HOME   
•    NEWS   
•    BUSINESS   
•    INTERNATIONAL   
•    TECH   
•    SPORTS   
•    LIFE & TIMES   
•    OPINION   
•    MY JAKARTA   
•    BLOGS   

The agreement made last week by 14 of the nation’s banks to set a cap on deposit rates is likely to slide because of competing market forces and confidentiality agreements signed by banks with large, preferred investors, three senior bankers said.

Speaking late on Monday, PT Bank Mandiri’s chief economist, Mirza Adityaswara, said a number of the big banks currently had large loan-to-deposit ratios, which meant that they needed to keep attracting fresh funds from depositors to meet Bank Indonesia’s minimum liquidity requirements.

“Those banks that currently have high levels of loans to deposits will likely be forced to offer high deposit rates,” Mizra said. “These lenders will need extra liquidity and the easiest way to get it is by offering time deposits with high returns.”

On Thursday, the country’s largest lenders agreed to eventually offer rates no more than 0.5 percent higher than the central bank’s benchmark. The ceiling, which is supposed to apply to the highest rates given to preferred large investors, would see deposit rates dropping to 7 percent based on the current key rate of 6.5 percent.

The move is also expected to drag lending rates down and was mooted by Bank Indonesia in a bid to stimulate economic growth.

According to central bank figures, as of the end of June, the average loan-to-deposit ratio stood at 73.2 percent. However, Mirza said that based on second-quarter financial reports, a number of banks, such as PT Bank Danamon and PT Bank Panin, had more than 80 percent of their deposits disbursed in loans. This would make it difficult for them to comply with what he called Thursday’s “gentleman’s agreement.”

When announcing the agreement, Bank Indonesia Senior Deputy Governor Darmin Nasution said banks that did not comply with the cap could be “reported” by the central bank. However, he declined to give any details of the sanctions a bank would face if it failed to comply with the agreement.

Sebastian Paredes, the president director of Bank Danamon, confirmed on Monday that the bank would trim its highest deposit rate to 8 percent on Tuesday. However, he said the bank remained pessimistic that the agreement would result in loan demand rising over the medium term.

“We are not making any revisions at the present time to our lending growth target. It is still below 10 percent,” he said.

Last week, Juniman, an economist at PT Bank Internasional Indonesia, warned that some banks could break the deal by making secret agreements with big customers.

“They can say that they are not exceeding the maximum rate set out in the deal, but who knows if they are paying more than that based on confidentiality agreements with their customers,” Juniman said. “This kind of thing happens rather a lot in our national banking system at the moment.”