Indonesia's push to boost lending may backfire as banks suffer

Jakarta

INDONESIA'S efforts to revive economic growth by bringing down lending rates are at risk of backfiring as they make banks the worst performers in the Jakarta Composite Index.

The Jakarta Stock Exchange Finance Index fell 5.1 per cent, the most among nine industry groups, since Feb 29 when the Financial Services Authority said it would cap deposit rates and force banks to make similar reductions to their loan rates. The regulator, known as the OJK, said the move would save banks money and encourage them to disburse more credit to spur lending growth that's slowed to less than half the average over the last five years.

The risk is that a lack of deposits in the banking system, increasing bad loans and the prospect of narrower net-interest margins will make banks more conservative in giving out credit. This could in turn damp economic growth, which trailed estimates to slump to 4.92 per cent last quarter from a year earlier. OJK chairman Muliaman Hadad said on Friday that w…