Bank Indonesia Prepares Sanctions For Banks That Are Lazy To Provide Loans

JAKARTA - Bank Indonesia (BI) has said that they will impose sanctions on banking service institutions that are considered not aggressive in extending credit and financing.

Assistant Governor Head of the BI Macroprudential Policy Department, Juda Agung, said the effort was intended to encourage banking intermediation activities to assist the economic recovery process during a pandemic.

"So as not to become a lazy bank", he said in a webinar, Friday, March 26.

Juda added that the monetary authority found that many banks prefer to place their funds in safer financial instruments in order to obtain fixed returns rather than channeling them back in the form of credit. Especially amidst the current abundant liquidity conditions.

"Many (banks) put their funds in SBN (government securities) because the free risk and return are good", he said.

In order to overcome this, Bank Indonesia is called Juda going to impose penalties in the form of demand deposits Macroprudential Intermediation Ratio (RIM), and Sharia Macroprudential Intermediation Ratio (RIMS) to be placed in the central bank.

Meanwhile, RIM's defined limits will apply gradually. The first phase will be officially set on May 1 with the stipulation that banks with a RIM/RIMS level below 75 percent are required to fulfill their current account placement obligations with BI. This rule is valid until the close of 2021.

Furthermore, starting January 2022, the RIM/RIMS magnitude will be enlarged to a minimum of 84 percent. For information, the monetary authority sets the amount of RIM/RIMS at this time at 78-79 percent.

This figure is a form of the relaxation of BI's policy some time ago, which considers that national banks need a fair amount of liquidity. However, amidst the current flood of liquidity, BI feels it is in the interest of returning to tighten RIM/RIMS to the level of 84-94 percent starting in 2022.

"Last year it was relaxed because many (banks) needed liquidity. But now we will give a penalty if there is a lot of liquidity but instead it is stored in SBN and does not want to distribute credit", he said.

For information, the obligation to place RIM/RIMS is stipulated in Bank Indonesia Regulation Number 20/4/PBI/2018 dated April 3, 2018, concerning Macroprudential Intermediation Ratio and Macroprudential Liquidity Buffer for Conventional Commercial Banks, Sharia Commercial Banks, and Sharia Business Units.

The regulation stated that this instrument is a strategy to encourage the intermediation function of banks to the real sector in accordance with the capacity and target of economic growth while maintaining the principle of prudence.

RIM/RIMS itself is one of the instruments used to measure the liquidity position in banking business entities.

Previously, the liquidity ratio referred to the amount of credit/financing to funds collected from third parties (loan to deposit ratio/LDR).

However, starting 2018, Bank Indonesia has included debt securities, bonds, and others issued by a corporation (non-bank) as an equivalent form of credit.