Banks urged to cut lending rates to follow benchmark interest rate

 Banks especially large ones should cut their lending rates to follow Bank Indonesia, which has slashed its benchmark interest rate since end of 2015.

The Central Bank has cut its "7-Day Reverse Repo Rate" by around 175 basis points since the end of 2015, a lawmaker said.

"The time the benchmark interest rate is cut, banks immediately cut their interest rate on deposit, but they drag their feet in reducing their lending rate," Sarmuji from the Commission V of the House of Representatives said here on Wednesday.

Sarmuji accused the banking industry of often acting unfairly and not proportionally, saying "when the benchmark interest rate rose they are quick to follow with an increase in their lending rates but slow in raising the interest rate on deposits.

The banking industry should not focused only on how to make profit and fail to think of a bigger national interest, he said.

He called on state lenders to serve as an good example in the banking sector by initiating a cut in lending rate immediately after the central bank cuts its benchmark interest rate.

"If large state banks cut their interest rates, privately owned banks would most likely forced to follow their lead to remain competitive."

"Private banks would follow otherwise they would lose their credible and good depositors," he said.

He said the banks should be more active in increasing their contribution to the national economy.

"No one preventing them from cutting their lending rate other than greed," he said.

Since end of 2015, the Central Bank has cut its benchmark interest rate by 175 basis points either through its old instrument of BI Rate or through "7-Day Reverse Repo Rate".

The most recent cut was when the central bank held a meeting of its council of governors earlier this month cutting its benchmark interest rate by 25 basis points to 4.5 percent.

Banks maintain two-digit lending rates at around 11-12 percent a year including for small and medium enterprise and working capital credits.

Since early 2016, the government has hoped to see lending rate reduced to one digit.

On Monday, President Joko Widodo met with chairman of the Financial Service Authority (OJK) Wimboh Santoso, Bank Indonesia Governor Agus Martowardojo and a number of cabinet ministers discussing efforts to cut lending rate.

Source: ANTARA