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

Bank Indonesia is urging commercial banks to reduce their dependence on customer deposits for liquidity, which could lead to lower lending rates.

Wimboh Santoso, head of the central bank’s financial system stability bureau, said late on Friday that lenders should use the interbank money market to fulfill more of their short-term liquidity needs and bring down rates, especially since default risks have fallen amid the easing of the global financial crisis.

“Liquidity conditions in the banking system are not as tight as they were at the end of last year,” Wimboh said. “Therefore, banks shouldn’t rely so much on deposits for their liquidity needs.”

Wimboh said interbank money market transactions had strengthened to an average of Rp 8 trillion ($800 million) to Rp 10 trillion per day, well above levels seen at the beginning of the year. The central bank hopes that transaction amounts will continue to increase as risk perceptions abate.

Liquidity and risk perception are among the main factors said to be keeping commercial lenders from responding to the lowering of the central bank’s benchmark interest rate.

While acknowledging that liquidity and risk levels had improved, BI Deputy Governor Budi Mulia said on Friday that some lenders might see the current market situation differently.

The central bank has cut its benchmark rate numerous times since late last year, from 9.5 percent in November 2008 to 6.5 percent this month. But according to BI data, the average base lending rate only dropped 0.84 percentage points over the same period, from 14.07 percent to 13.23 percent.

Gatot Soewondo, the president director of PT Bank Negara Indonesia, said last week that lenders felt liquidity had not yet returned to normal levels, adding that banks were reluctant to reduce lending and deposit rates because they feared depositors might flee to smaller banks that could offer higher returns.

To improve retention, lenders have continued to give major customers rates as high as 10 percent, whereas, according to Bloomberg, on Friday the Jakarta interbank offered rate (Jibor) stood at just 7.7 percent.

Lisawati, vice president director of small-scale lender PT Bank Jasa Jakarta, said that while the interbank market had indeed become more liquid and easier to borrow from, the central bank should move to guarantee interbank loans to deflate risk perception and interest rates.