Indonesia’s liquidity release may boost bonds instead of loans

Banks are increasingly allocating funds towards short-term government bonds and securities.

The Indonesian central bank's move to free up more money for loans may do little to spur lending, as banks may choose to park it in securities and government bonds instead.

Bank Indonesia has moved to increase its macroprudential policy incentive to 6% of third-party funds from the previous 5.5%. This is projected to release IDR50t to IDR53t in banking liquidity, said UOB Kay Hian.

The central bank intends this liquidity to be used to support credit disbursement as well as ease pressures in the banking system.

Liquidity in the economy and banking system remains ample, noted UOBKH analyst Suryaputra Wijaksana.

Banks are increasingly allocating funds towards short-term government bonds (SBN) and central bank issued securities (SRBI).

“As a result, SRBI yields have become the benchmark rate for the economy, with banks preferring SRBI allotments over interbank placements or credit disbursement,” Wijaksana said.

Wijaksana noted that credit yields remain compressed due to intense competition for corporate loans and deteriorating consumer risk profiles.