Indonesia gets tough on interest rates

Bank Indonesia (BI) may revoke the licences of credit-card issuers who charge interest rates above the threshold recently set by the central bank, an official says.

“We have a supervisory team that will handle the matter. The punishment [for non-compliance] will vary from basic administrative sanctions to the revocation of their licences,” BI Deputy Governor Ronald Waas said.

BI issued a rule last week that will cap credit-card interest rates at 2.95 per cent starting in January to protect local customers from high interest rates. The threshold was deemed high by bankers, who had expected BI to cap rates between 3 to 3.25 per cent. Currently, most of the nation’s banks charge more than 3 percent in credit card interest.

Ronald, however, stated that credit-card issuers must comply with the 2.95-per-cent cap, which was promulgated after the central bank completed thorough studies of the local industry.

“Our economy is becoming better. Our banking industry is becoming more efficient. If our banks’ cost-to-income ratio sees a downward trend, then the interest rates must be pushed down as well,” he said.

The 2.95-per-cent interest rate cap would be re-evaluated at least once every six months, as the central bank monitors efficiency in the nation’s banking industry, Ronald said. Local bankers, however, are still complaining about the threshold, whatever the intentions of the central bank. “I agree with the BI’s rule that stipulates a person can have a maximum of only two credit cards, because it is indeed risky for a person to hold too many credit cards. However, I disagree with this rule on the interest-rate cap,” Bank Negara Indonesia (BNI) president director Gatot M Suwondo said.

Many of BNI’s current credit-card holders, especially those with a credit limit of around 5 million rupiah (Bt16,000), were paying interest rates greater than 3 percent, Gatot said. Gatot added that BI should have not imposed the threshold in the first place, claiming that credit cards were a low-risk business that already featured lower interest rates compared to other loan channels.

The ratio of non-performing loans (NPL) for credit cards stood at around 3.5 per cent this year, down from its last year’s figure of 4.6 per cent, and dramatically down from the 10.5 per cent rate recorded in 2009, according to the Indonesia Credit Card Association (AKKI).

“If there is someone identifying our credit cards industry as a messy business marred with many bad loans, well, the [NPL] figure does not back them up” AKKI general manager Steve Marta said on Thursday. 

The interest-rate cap followed a regulation issued by the central bank in September that set minimum age and salary requirements for the holders of certain credit cards.

The central bank has implemented a series of tougher regulations on credit cards following a series of high-profile incidents involving Citibank Indonesia, a major player in the local credit-card business.