Bank Indonesia to Issue Regulation on Financing to Funding Ratio

JAKARTA (TheInsiderStories) – Bank Indonesia, the country’s central bank, is finalizing regulations on the Financing to Funding Ratio (FFR), focusing on the ceiling and upper limits of a premium rate for banks.

This regulation will afford more flexibility to the banking industry in managing their liquidity, both in the form of lending as well as for corporate bond funding, Perry Warjiyo, Bank Indonesia Deputy Governor Perry Warjiyo told TheInsiderStories.

He said banks have different liquidity conditions; therefore, they should have options and flexibility in managing their liquidity. In order to help banks manage liquidity, Bank Indonesia introduced an FFR scheme in the third quarter, called ‘Financing To Value ratio (FTV)’, improving previous policy.

The move is aimed to stimulate sluggish lending growth in the country.

‘Until October, banks’ lending growth was slightly above 8 per cent on an annual basis. We have seen improvement in several sectors, including construction, transportation, financial services, CPO as well as non-durable consumer goods (food and cloth),’ he said.

Under the new regulation, Bank Indonesia expects corporates to be encouraged to issue more corporate bonds, as there are more tradable bonds in the market from banks. As part of the new regulation, the central bank will set a minimum rating to force banks to maintain prudence.

Bank Indonesia previously revised down its projection for credit growth of the country’s banking industry to between 8 to 10 per cent, from 10 to 12 percent, tracking low demand for credit.

Banks’ lending grew 7.78 per cent in September, slightly higher than the 7.75 per cent growth recorded in June. However, overall loan growth in the nine months to September was only 3.8 percent, compared to the same period last year.

Demand for loans was lower than Bank Indonesia’s previous estimate because many corporations had only just finished consolidation, he said. The corporate sector wants to ensure their balance sheets are healthy. Therefore, they have not proposed higher lending. They will study the global economy first before pushing for higher lending activity.

Banks are also consolidating the quality of their loan disbursement, he added.

Meanwhile, the central bank estimates lending growth should reach between 10 to 12 per cent next year, driven by expected improvement in exports and State Budget capital spending.

Written by Yosi Winosa, email: