BI pressure banks to reduce cost

Bank Indonesia pressure banks to reduce their costs ahead of publishing their prime lending rate regulations as required by the end of the month.

Beginning on March 31, Bank Indonesia will require 44 banks with more than IDR10 trillion in assets to announce their prime rates. The policy requires lenders to display their prime rates in every office and branch, the print media and the main page of their website. It will depress the credit interest so central bank expect loan expansion will grow.

According to a Business Competition Supervisory Commission (KPPU) study, the banking sector had a net interest margin of 5.6 percent from 2007 to 2009, bigger than Vietnam (3.3 percent) and South Korea (2.4 percent).

Net interest margin is the spread between the rate banks charge for loans and what they pay on deposits. The KPPU report also revealed local banks’ ratio of operational costs to revenue was 80 percent, higher than Malaysia’s 40 percent and Thailand’s 54 percent.