Bank Indonesia Addresses Banking Sector Distortion

Special Rates for Large Depositors Create Market Inefficiency

Bank Indonesia (BI) has brought attention to the significant distortion in the banking market caused by banks offering special interest rates to large depositors. As of October 2025, these special rates applied to deposits totaling Rp2,656.79 trillion, representing 27% of the banking sector's total third-party funds. The average interest rate for these large deposits stood at 5.21%, compared to the standard one-month deposit rate of 4.25% during the same period.

Government Entities Significant Contributors

The data revealed that government-related entities (both state-owned and non-state-owned enterprises) were among the primary beneficiaries of these special rates, with total deposits amounting to Rp817.16 trillion at an average rate of 5.10%. This phenomenon has created substantial inefficiency in banks' funding structures, as evidenced by the widening spread between special deposit rates and the maximum interest rate guaranteed by the Indonesia Deposit Insurance Corporation (LPS).

Impact on Lending Rates and Monetary Policy Transmission

The persistence of high-cost funds has forced banks to maintain elevated lending rates to cover their expenses, resulting in a mere 20 basis point reduction in lending rates throughout the year until October 2025. This slow adjustment contrasts sharply with the 150 basis point cut in BI's benchmark rate during the same period.

Bank Indonesia's Response

To address this rigidity, BI plans to enhance the effectiveness of its Macroprudential Liquidity Incentives (KLM) through the interest rate channel. Banks that are slow to adjust their lending rates will be required to maintain higher Statutory Reserves (GWM), while responsive banks will receive liquidity incentives. BI will also continue to coordinate with the Financial System Stability Committee (KSSK) to implement joint measures to accelerate the reduction of special rates for large deposits and narrow the spread between deposit and lending rates.