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Investor Presentaiton

Assessment of Policy Rate Transmission to Prime Lending Rates in the Banking Industry Bank Indonesia published the “Assessment of Policy Rate Transmission to Prime Lending Rates in the Banking Industry" to accelerate monetary policy transmission and expand the dissemination of information to corporate and individual consumers in order to enhance governance, market discipline and competition in the credit market. Prime Lending Rate and Deposit Rate Response to BI7DRR 1 Bank Indonesia has maintained an accommodative monetary and macroprudential policy stance in order to stimulate economic growth. Key Takeaways The banking industry has continued to lower prime lending rates (PLR), although the magnitude ofreductions has slowed. The cost of loanable funds (CoLF) is still edging prime lending rates down, yet higher profit margins have offset further reductions. The risk premium in the banking industry is trending upwards, pointing to a higher risk perceptionof the corporate sector. Consequently, state-owned banks, national private commercial banks and regional government banks raised lending rates on new loans in April 2021. • Prior to the Covid-19 pandemic, from June 2019 until Feb 2020, BI lowered the BI7DRR policy rate five times by a total of 125bps from 6.00% to 4.75%. From March 2020, Bank Indonesia lowered the policy rate another four times (100bps) to a level of 3.75% in November 2020, and lower another 25 bps in Februari 2021 to 3.50%. In terms of liquidity, accommodative monetary and macroprudential policy significantly boosted liquidity in the banking industry in order to maintain financial system stability and the bank intermediation function. Graph 1 Prime Lending Rate, BI7DRR and 1-Month Term Deposit Rate Performance 10.64 8.87 6.14 5.73 5.37 5:20 3.65 3.50 2 O 5388 8 8 8 2017 2018 2019 2020 2021 Spread (SBDK-BITDRR) SBDK Graph 2. Prime Lending Rates by Bank Gro Spread (SBDK - Sb depo 1 bln) Deposito 1 bulan Group Graph 3. Prime Lending Rate Performance by Component The banking industry has continued to lower prime lending rates (PLR) in response to the BI policy rate, although the magnitude of reductions has slowed. By bank group, state-owned banks were the main driver of lower PLR in the banking industry. . . By component, the cost of loanable funds (CoLF) remained the main contributor to lower PLR. In the near term, the dynamics of PLR components are characterised predominantly by higher profit margins in the banking industry amidst a lower cost of loanable funds (COLF). Pursuant to OJK Regulation (POJK) No. 37/POJK.03/2019 concerning Bank Report Transparency and Publication, the PLR consists of three components, namely; i. the cost of loanable funds (COLF), incl. the cost of funds, cost of services, regulatory costs and other costs; ii. overhead costs (OHC), incl. labour costs, education and training costs, R&D costs, rental costs, promotion and marketing costs, maintenance and repair costs, fixed asset and inventory depreciation costs as well as other overhead costs; and iii. profit margin, which is determined by the respective bank for lending activity. 1 Assessment period until April 2021. Source: Bank Indonesia 14 12 10 8 B 6 14" 12 10 2018 --BPO 2019 BUMN Source: Financial Services Authority (OJK), processed 5.5 5.0 4.5 11.39 40 10.0.3 9.35 3.5 10.21 9.05 30 8.70 7.75 25 6.57 20 2020 2021 BUSN KCBA 3 2 3 3 4 2 3 3 4 2 3 8 2017 2018 HPDK OHC 4.53 3.48 3.20 2.62 148 2019 2020 2021 Margin Keuntungan Source: Financial Services Authority (OJK), processed.
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