Cost of Funds Prevents Banks to Lower Lending Rates

A week has passed since Bank Indonesia (BI) lowered its benchmark rate, or the BI 7-Day Reverse Repo Rate (BI7DRR), by 25 basis points (bps) to 5.75 percent, yet banks haven’t cut their lending rates, particularly for mortgages (KPR). The benchmark rate cut is expected to be immediately followed by lower lending rates since the cost of funds has also decreased. The lower lending rate is highly anticipated so that people and corporations may apply for loans at lower rates, thus leading to better economic growth.

PT Bank Negara Indonesia Tbk is among the banks that have yet to lower lending rates. The state-owned bank said that it could not immediately reduce rates, especially mortgage interest rates, for several reasons, from the cost of funds as the most significant component, credit risk premium, and overhead costs. At present, the average floating BNI mortgage rate is in the range of nine percent to 13 percent with a fixed interest period of two to three years. The lowest interest rate offered is a fixed 4.5 percent for one year in cooperation with a state-owned housing company, Perumnas. After the fixed interest period ends, the customer must be prepared to bear floating interest rates.