Ardian Wibisono

Slow Down and Listen Before Changing Reserves Requirement, Bank Indonesia is Urged

Bankers have urged the central bank to listen to their views before proceeding with a proposal to spur corporate lending by abolishing the current reserve requirement.

During the annual bankers’ dinner on Friday, the central bank confirmed plans to abandon the reserve requirement, which mandates that all banks must place 7.5 percent of their deposits with Bank Indonesia. It would be replaced by a more flexible regime that would require lenders to maintain a loan-to-deposit ratio (LDR) within a fixed range.

Agus Martowardojo, chairman of the Indonesian Bankers Association (IBI) and president director of PT Bank Mandiri, said late on Friday that the central bank should gather more input from the industry. “I agree with the central bank giving a signal that it will create incentives and disincentives regarding the LDR level. However, the policy needs to be discussed more before it is implemented,” he said.

Jahja Setiaatmadja, vice president director of PT Bank Central Asia, said Bank Indonesia should consider the fact that the LDR is determined not just by lending but also by the level of deposits. “The LDR level could be constant even if a bank does a great job on its lending but its deposits grow much higher,” he said.

Lisawati, vice president director of PT Bank Jasa Jakarta, suggested that the LDR calculation should also include loans that had been approved but not dispersed because banks should not be penalized if customers do not take up agreed credit.

Bank Indonesia is eager to push credit growth beyond 20 percent this year and ensure that companies have ample access to credit. Last year lending grew by 10.7 percent, with some companies accusing banks of overly cautious policies.

Under the new regulation, which has yet to be finalized, banks would be offered incentives to meet the government’s lending target and would face penalties if they fell short.

In addition, Bank Indonesia is also planning to establish benchmarks for lenders’ overhead costs, risk premiums and profit margins. This is aimed at making banks more efficient and driving down lending rates, which some borrowers have complained remain too high despite a record-low BI benchmark rate.

Glen Glenardi, president director of PT Bank Bukopin, said it was wrong to assume that banks were charging high interest rates only to boost profit margins.

“Each bank has a different operational cost depending on their class and their size. It is better if it is controlled by market mechanisms instead of being regulated,” he said.

Jahja said that in some cases high overhead was the result of a desire to expand the business rather than chase high profits. So it did not make sense to have a single benchmark , he said.

“If a bank is expanding their business it is likely that their overhead costs will increase. If overhead costs are to be regulated it is better to classify the regulation in terms of the lender’s size and market,” Jahja added.

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