Bank Oligopoly Leads to High Interest Rate

VIVAnews - Head of Economists at Danareksa Research Institute, Purbaya Yudhi Sadewa, pointed out that oligopoly is being practiced by top banks with regard to interest rate policy. As a result, the decrease in credit interest rate is slow although Bank Indonesia (BI) has been very aggressive in cutting the BI Rate.

"The indication of oligopoly can be observed from the reluctance of the top banks in reducing the rate," Sadewa told VIVAnews on Wednesday, April 8. "The competition between them is really weak," he added. 

He reminded that there are only few top banks which may control banks interest rate. Some of them are state-owned banks whose managements are already familiar with each other. Six top Indonesian banks control around 50 percent of credit market.

"If the managements of the top banks said in the media that the interest rate is difficult to decrease, then it will be the signal for other banks to maintain the rate," said Sadewa. "Therefore, they are into conspiracy. They are only pretending of competing with each other," he said.

According to him, top banks should be more aggressive in cutting the rate as BI did. The central bank had cut the BI Rate by 200 basis points in several months resulting in the current level of 7.5 percent.

In addition, top banks had only cut the rate slightly. For the time being, loan interest rate is only at between 14 and 18 percent. In fact, last year, as the BI Rate reached eight percent, loan interest rate was at between 12 and 13 percent.

"If banks delay cutting the rate, the Indonesian economy will be affected the most," he said.

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Translated by: Bonardo Maulana Wahono