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Source: Reuters

UPDATE 1-Indonesia wants banks to lower lending rates

Published: 12 Nov 2009 23:07:34 PST

JAKARTA, Nov 13 - Indonesia's central bank plans to issue regulations to reduce bank lending rates, senior central bank deputy governor Darmin Nasution said on Friday, in order to boost growth in Southeast Asia's biggest economy.

Nasution said the central bank would analyse the cost structure of commercial banks before drafting the new regulation on lending rates, to be issued in the first half of 2010.

"In slow economic conditions, demand for loans is not high, so the lending rate should be lower. If it is not coming down, something is not right," he said.

Nasution had said on Thursday he expected the measures, to be introduced gradually, to eventually prompt commercial banks to reduce the spread between lending and deposit rates. He did not elaborate.

Banks currently charge lending rates at around 14 percent for working capital loans and investment and around 16 percent for consumer loans, while deposit rates are around 6 percent.

Analysts said capping lending rates at certain levels might be difficult given differences in the banks' cost structure.

For example, state-controlled Bank Rakyat Indonesia <BBRI.JK> which lends to small businesses, may have higher costs because of its extensive network across the archipelago, analysts said.

"The current lending rates remain high because of certain things such as worries over non-performing loans and high overhead costs," said one research analyst who declined to be quoted by name.

Nasution also said the rupiah <IDR=> currency will continue strengthening, supported by capital inflows.

"The capital inflows supported the gain but not only in Indonesia," he said.

The rupiah has risen 16.8 percent so far this year against the U.S. dollar, one of the best performing currency in Asia.

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