BI Reveals The Reasons Why Banks Do Not Lower Credit Interest Quickly

Illustration of rupiah currency. (Photo: BI)

JAKARTA - Bank Indonesia (BI) evaluates that the reluctance of banking business actors to immediately reduce credit interest rates after the central bank cut the benchmark interest rate has been ongoing for a long time.

Assistant to the Governor and Head of the Department of Macroprudential Policy at BI, Juda Agung, said something different would happen to the savings product sector owned by banks.

"If the BI interest rate drops, these banks will immediately lower their deposit rate, they are very responsive. But it is different from credit interest rates which tend to be slow in responding”, he said in a webinar Monday, February 22.

Juda noted that the monetary authority had lowered the benchmark interest rate by 225 basis points from June 2019 to February 2021.

"What follows is the deposit interest rate, while the credit interest remains rigid so that the spread is very far from the BI rate", he said.

He suspects that the bank's strategy to withhold credit interest is triggered by the motivation to maintain financial performance.

"These banks are trying to get more profit at a time like this", he said.

In fact, said Juda, credit interest rate adjustments are very important to provide stimulus to customers to apply for loans.

"Actually, this is not conducive to the economy. If credit interest rates fall quickly, it should be able to encourage the economy to recover soon. This is also the reason why people are still hesitant to ask for credit from banks”, he explained.

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As previously reported, at a virtual press conference in the middle of last week, BI Governor Perry Warjiyo said that the reduction in credit interest rates was still limited, namely only 83 bps to 9.70 percent throughout 2020.

Meanwhile, the 1-month deposit rate has decreased by 181 bps to a level of 4.27 percent in December 2020.

"The slow decline in credit interest rates is due to the still high prime lending rate (SBDK) of banks", explained the BI Governor.

For information, on Thursday, February 18, Bank Indonesia decided to lower the BI 7-Day Reverse Repo Rate (BI7DRR) by 25 bps to 3.50 percent. The cuts are the first this year and are expected to become a separate stimulus for national economic recovery.