Tuesday, 1 July 2014


The competition to raise public capital among bank in Indonesia was seen to heighten. Apparently, bank’s strengthened the strategy for financing capacity to keep up with credit growth.

Lately, bank’s were adjusting fixed deposit interest rate to motivate the people to place their fund. The interest level allowed for depositors even exceeded the limit set by Deposit Insurance Agencies [LPS].

Not just that, bank’s were also making gimmicks of prize offering for savings account. There were even banks which offered interest equal to fixed deposit interest.

Some banks maintained gimmicks of prize of fering while preparing savings account equal to fix deposit, because they planned to increase portion of low cost fund, i.e. savings account and giro. Lately there was also some private banks which planned to launch new savings account products called internet Savings.

The Internet Saving Account offered interest higher than conventional savings account which was today around 3% - 5 % per year. As the name indicated, the customer must use internet facility to open the saving account. This private bank felt it necessary to launch low cost fund because in Q-1 last year, the bank posted downturn in growth of cheap fund.

In fact there were other options that banks could take to raise public fund. The stockmarket was also a way to obtain fund by issuing promissory notes. However this was not widely applied as the requirement for it was not easy. So the conventional way of increasing deposit interest through attractive marketing gimmicks was something to rely on.

In fact the signals of banks having difficulty in raising third party fund from the people had been apparent since Q-4 of 2014. Some first tier private banks were aggressively increasing fixed deposit interest; and even some medium and small banks were following that trend while some BUMN banks seemed slow in adjusting deposit interest rate.

Only after the interest rate level, especially deposit interest was starting to climb up to around 200 basic points since Q-4 last year, BUMN banks were starting to adjust their deposit interest rate. Unfortunately adjustment of interest rate at BUMN banks were sort of too late because price in process was already happening sooner in the market.

It was reasonable to conclude that the competition to grab third party fund by banks had arrived at fearful level as offering of special rate was mushrooming. The pragmatic recipe of attracting depositors was by way of offering special rates like Deposit insurance plus 2 % - 3% plus other benefits like offering give away goods: handphones, laptops, i-phone etc.

The same trend was happening at the interbank moneymarket [PUAB] as catalyst to see the liquidity level at the market. Last year, PUAB interest was around 4.5% but was now moving up to around 5.8%. Meaning price of fund was getting more expensive as many banks fighting over it.

To refer to Loan to Deposit Ratio [LDR] per March 2013 at around 91.17% it was clear that liquidity among the public was shrinking. Moreover with the stipulation of Minimum Mandatory Giro [GWM] was quite sizable, i.e. 8% which must be placed by BI, so cleary liquidity was tightening.

The signal of liquidity condition was already visible when last May the Deposit Insurance Agency [LPS] increased LPS rate for conventional banks by 25 bps to become 7.75%, slightly above BI rate which was 7.5% LPS saw that movement of deposit interest was and aggressive and massive, While the amount of fund of the low strata people which must be protected was growing in amount.

For information, the maximum amount guaranteed by LPS was Rp 2 billion per account per person. They were in fact the ones who were LPS target for protection. Considering that the average deposit interest with maximum deposit of Rp 2 billion was growing. LPS took unusual measure, i.e. to increase LPS from 7.5 % to 7.75 % so it was some sort of preemptive policy of LPS just in case.

At certain point the competition to fight for DPK would reach its peak which led to interest war a condition which was indeed not desirable. So one of the options to cool down competition which tend to be unhealthy was when BI dared to lower GWM ratio from the present 8% to 6%. By this way, liquidity in banks would be eased and would automatically ease the tension in compering to grab public fund.

Why did BI have to adopt the policy and not OJK ? Because the stipulation on GWM ratio was still in BI’s authority - so hopefully BI could understand the situation and condition faced by the banking sector today which were feeling more and more difficult to harness public fund. Easing of liquidity through lowering of GWM ratio was among the many options to be taken by BI. (SS)

Business News - June 13, 2014

No comments: