Friday, January 22, 2010

BI change reserve rule to encourage lending

Bank Indonesia changed its reserve requirement rules, linking the amount of money that banks need to place with the central bank to how much they are lending, in a move aimed at boosting credit.
The so-called secondary reserve, or the funds lenders need to put in zero or low-interest accounts at the Bank Indonesia. This rules will be tied to their loan-to-deposit ratio.
Bank Indonesia aims to accelerate lending growth to between 17 percent and 20 percent this year to help the contry economy expand. Bank Indonesia uses the statutory reserve requirement and secondary reserve requirement, both measures of how much commercial lenders need to place in deposits at the central bank to manage liquidity in the banking system.
Currently, banks are required to place 5 percent of their deposits at the central bank and set aside 2.5 percent in the form of expanded cash or bonds.
The goverment is encouraging the country's banks to merge in order to strengthen an industry that was rescued with a IDR450 trillion bailout during the 1997 Asian financial crisis. Bank Indonesia also plans to implement new rules on mergers and acquisitions this year.

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