Indonesia to impose bank lending rate transparency in Oct.

Indonesian banks will be required to disclose a detailed breakdown of their lending rates, including margins, as of October.

This new regulation, implemented by the Financial Services Authority (OJK), aims to increase industry competitiveness and promote lending growth.

The OJK emphasised that the rule aims to encourage banks to set their interest rates efficiently, supporting the financing of the Indonesian economy.

President Joko Widodo had previously criticised banks for setting excessively high margins, which could hinder lending growth in Southeast Asia’s largest economy.

The net interest margin (NIM) for Indonesian banks stood at 4.79 per cent in the second quarter of 2023, the highest among its Southeast Asian peers, according to a Fitch Ratings report. The OJK stated that the NIM had decreased slightly to 4.57 per cent as of June this year.

Under the new regulation, banks must update clients whenever their prime lending rate changes, providing detailed information about their cost of funds, overhead costs, and margin used in rate calculations.

Additionally, lenders are required to report an estimate of the risk premium they charge customers to the OJK on a monthly basis.

Sanctions for non-compliance include fines of up to 15 billion rupiah ($970,000) for inaccurate information regarding rates.

Attribution: Reuters

Subediting: M. S. Salama