Banking and Finance

It's Time to Guarantee Interbank Transactions

VIVAnews - The central bank, Bank Indonesia (BI) sets BI Rate at 9.5 percent. However, in reality, a number of banks set their fixed deposit interest rate at 15 percent, or even more. This happens because some banks are still experiencing tight liquidity.

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Bank Indonesia's policy in applying minimum reserve requirement (GWM) that is linked to loan to deposit ratio (LDR) has caused banks to not receive incentives from liability decrease of GWM deposit.

Banks having low LDR, such as the bigger banks, that do not require funding for high liquidity, in fact received GWM cuts. Meanwhile, small banks that need liquidity have only obtained small GWM cuts.

The situation causes most banks to continue to apply high interest rate for fixed deposit in order to withdraw third party funds from the customers. This is being carried out to increase the banks' liquidity.

Bank Indonesia's plan, which soon will improve calculation of minimum reserve requirements to help support banks' weakening liquidity due to global financial crisis, is a perfect measure. It is the time for Bank Indonesia stop applying minimum reserve requirements based on LDR.

In addition, Bank Indonesia should have guaranteed interbank transactions so that there would be a guarantee for a bank to give liquidity loans to other banks. For the time being, interbank loans cannot be implemented smoothly because the government has not yet offered guarantee on such transactions.

Right now there is tight liquidity because Bank Indonesia sets low BI Rate in long term. As a result, fixed deposit customers have chosen to invest in other places.

This can be observed from the fact that the growth of the national banking third party fund reaches only 10 percent. Meanwhile, credit growth is up to 35 percent. There is imbalance between credit growth and third party fund growth.  

If the banking sector does not stop or slow down credit growth, there will be a continuous imbalance. Or, the banking sector must increase third party fund to create a meeting point between credit growth and third party fund growth.

Moreover, the high amount of unabsorbed State Budget has resulted in high government's account in Bank Indonesia. In fact, such fund is acquired from state bonds issuance. This means that people's fund is being absorbed, which causes weak liquidity in the market.

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*This writing is a result of a discussion with Anton Gunawan, Bank Danamon’s Head Economist, during a workshop at Freedom Institute, Cianjur, last week.

Translated by: Bonardo Maulana Wahono

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VIVA.co.id
29 Maret 2024