Bank Indonesia (BI) is not satisfied with the current position of bank lending rates.

Since last June 2019, BI has cut the 7-day reverse repo rate (7DRRR) by 225 basis points to the level of 3.5 percent. However, bank credit interest is still relatively high.

In fact, in a situation of the COVID-19 pandemic, people's purchasing power and ability to pay are weakening.

"Credit interest rates are still very rigid. It seems that the spread is increasing. In fact, experiencing a widening means that banks are trying to get more profits at a time like this," said Assistant Governor of the BI Macroprudential Policy Department, Juda Agung, in a Video Conference, on Monday ( 22/2).

Juda assessed that the bank deposit interest rate has fallen following the decline in the benchmark interest rate.

"It's just that the transmission of lowering credit interest rates is much slower," he explained.

According to BI research and analysis, since June 2019, the bank's prime lending rate (SDBK) has only decreased by 116 bps on average, which caused the prime lending rate spread to the BI7DRR to widen from 5.27 percent in June 2019 to 6.36 percent in December 2020.

"This is what we really don't want. BI want that if the interest rate is lowered, the (bank) 's response should be the same," said Juda.

Still, from the same research, the SDBK for SOE banks is more rigid than other bank groups when viewed from the bank group. The Prime Lending Rate for Foreign Bank Branch Offices was, on record, the most responsive to the cut in BI's policy rate.

BI recorded that the SDBK of state-owned banks as of December 2020 was 10.79 percent; only 88 bps fell from the position in June 2019 of 11.67 percent, while the Regional Development Bank (BPD) was 9.8 percent down from 70 bps since June 2019.

Then the National Private Commercial Bank (BUSN) reached 9.67 percent, down 120 bps. Meanwhile, BUSN has the lowest prime lending rate, touching 6.17 percent of it has fallen by 290 bps.

It did not stop there. BI also assessed that SDBK rigidity occurred in almost all credit segments, from the consumer, corporate to retail loans. The banks' top response was also reflected in their slowing in lowering prime lending rates.

For example, the non-mortgage consumer credit (Non-KPR) segment fell only 67 bps since 2019, and the consumption credit for a mortgage by 57 bps in the same period. However, BI understands that the slow decline in prime lending rates for mortgages is mainly due to the medium-long loan tenor factor.

Unlike the credit segment, BI assessed that micro credit interest rates were more responsive to the BI7DRR interest rate cut. Since June 2019, micro credit interest has decreased by 276 bps. Although it is still high, reaching 13.75 percent.

The decline in prime lending rates for the micro-credit segment is, of course, inseparable from the government's policy of encouraging micro-scale financing through subsidized credit interest rates, especially amid the economic downturn due to the COVID-19 pandemic.

To that end, BI will issue a transparency policy on the basic interest rate for bank credit. The goal is for the public better to understand the loan interest rate at each bank.

Thus, it will create a healthier climate for interbank competition. Therefore, it will gradually encourage the transmission of lower credit interest rates to be faster.

"This (policy) publication aims to improve governance, market discipline, and competition in the formation of prime lending rates for banks so that the prime lending rate offered can be more competitive," said Juda.