BANKS FACING DILEMMA IN LOWERING INTEREST RATES: ECONOMIST

Jakarta, March 12 (ANTARA) - Banks are still facing a dilemma in lowering their interest rates on credits and deposits, economist A Tony Prasetiantono said here on Thursday.

"Banks are facing a dilemma in lowering interest rates in the current economic conditions, although the government has asked them to cut their rates after Bank Indonesia (BI) lowered its benchmark rate," Prasetiantono said.
He said that on the one hand, banks would have a good chance to reduce their non-performing loans (NPL) if they cut their interest rates but on the other hand, they would also face a stiff competition with the government in seeking funds to increase their liquidity.
"Banks have to face the government head-to-head in seeking liquidity, a reason which explains why they are still maintaining the levels of their credit interest rates," he said.
Moreover, he said, the government has recently issued retail Islamic bonds whose interest rates are far higher than those of banks.
This clearly raised banks' concerns that public funds or liquidity which are kept at banks would then flow to government bonds, sharia- based notes and state debentures, once they cut their interest rates.
Prasetiantono said he was aware of the government need for funds to help safeguard its state budget. "So, actually there is a conflict between the interest of the government and banks with regard to the interest rates," he said.
He said all wanted the real sector to be developed. Banks wanted to cut their NPL while on the other hand they and the government had to compete with each other to obtain liquidity.
Therefore, Prasetiantono said he could understand if until now banks were still adopting a wait-and-see attitude before they could lower their interest rates.
This is despite the fact that the government through the minister of finance has called on banks to soon lower their interest rates in order to help propel the real sector.
He said that a side who would take the initiative to pioneer the lowering of the interest rate is needed.
"It is in this respect that the government, particularly state banks, is demanded to take the initiative to take pioneering role," he said.