JAKARTA (TheInsiderStories) – Indonesia Deposit Insurance Corporation (DIC) considers that banking liquidity will have the potential to tighten until the end of 2018. This is influenced by credit growth which is faster than the growth of third party funds.
Based on the Liquidity Indicator data released by the agency, banking credit growth in September 2018 recorded 12.69 percent while the growth of third party funds banking only reached 6.6 percent. As a result, the banking liquidity to deposit ratio (LDR) reached 93.39 percent, over the maximum limit as regulated by Bank Indonesia is at 92 percent.
“This higher credit growth reflects banking liquidity conditions that tend to tighten,” said Director of the DIC Financial System Stability Surveillance and Group, Doddy Ariefianto on Wednesday (11/21).
The body noted, the highest LDR of the banks was recorded in third book banks, which amounted to 103 percent. He rated, the high LDR condition triggers competition among interbank interest rates.
In the future, according to Ariefianto, the condition of tightening liquidity will still occur. Because the high credit growth will still move up, although a little restrained due to limited deposits and the increase in lending rates due to the increase in key interest rates.
Meanwhile, the low growth in deposits will still occur, amid adjustments in deposit rates made by banks. Therefore, DIC predicts credit growth will be at 11.5 percent and deposits at 7.2 percent so that the banking LDR is at 93.2 percent.
Meanwhile, regarding bank deposit rates, the average benchmark interest rate for DIC benchmark banks at the end of October 2018 reached 5.95 percent, increased 17 basis points (bps) from September 2018.
The same thing also happened at the average minimum interest rate which increased 9 bps to the position of 4.93 percent and the maximum interest rate which increased 26 bps to the level of 6.98 percent.
Likewise, the foreign exchange deposit interest rate in the same period experienced an average increase of 10 bps and a maximum increase of 15 bps. The increase in deposit rates occurred in all groups of commercial banks with the highest increases occurring in third and fourth book banks.
Going forward, the space for increase in deposit interest is still there, but it is approaching the optimal limit, especially for maximum interest rates. However, this increase will continue if the central bank again raises the benchmark interest rate.
On the other hand, foreign exchange deposit interest is expected to increase amidst the gap between onshore and offshore deposits and the potential continuation of the Fed Rate in December.
In addition, Bank Indonesia also loosened the Macro-prudential Liquidity Buffer rules. This is an improvement from the secondary reserve requirement. In this policy PLM can reposition to the central bank from 2 percent to 4 percent.