OJK Urges Banks to Enhance Funding Strategies Amid Slow Credit Rate Adjustments

Background on Recent Rate Cuts

Following Bank Indonesia's (BI) decision to cut the BI Rate, concerns have emerged regarding the slow adjustment of credit interest rates by commercial banks. BI Governor Perry Warjiyo highlighted that while the BI Rate was reduced by 125 basis points, one-month deposit rates only decreased by 56 basis points from 4.81% to 4.25% between early 2025 and October 2025. The adjustment in banking credit rates has been even slower, with credit rates dropping by only 20 basis points from 9.20% to 9.00% during the same period.

OJK's Response and Guidance

In response to these developments, the Financial Services Authority (OJK) has been monitoring the situation closely. Dian Ediana Rae, OJK's Executive Head of Banking Supervision, noted that banks have been gradually adjusting their credit rates in response to the BI Rate cuts. "On a year-on-year basis, there has been a decrease in average credit rates in rupiah, with a reduction of 50 basis points for investment credit (from 8.75% to 8.25%) and 41 basis points for working capital credit (from 8.87% to 8.46%) as of September 2025," Dian explained.

Future Outlook and Recommendations

Dian emphasized that the reduction in BI Rate tends to be followed by a decrease in credit rates, albeit with a certain lag due to the monetary policy transmission process. She added that there is still potential for further credit rate reductions, particularly if global interest rates decline as expected in Q4 2025. OJK believes that banks have the capacity to continue lowering credit rates, but this will depend on their individual strategies and cost structures, particularly their cost of funds.

Strategic Recommendations for Banks

To enhance their flexibility in setting credit rates while maintaining competitiveness and profitability, OJK has advised banks to optimize their funding strategies. A key recommendation is to increase the proportion of low-cost funding, which would enable banks to adjust their credit rates more effectively. OJK also cautioned banks against engaging in unhealthy interest rate competition and emphasized the importance of maintaining transparency and consumer protection in their product offerings.

Implications for Financial Stability

The OJK's guidance underscores the importance of balanced financial management in the banking sector. By optimizing funding strategies and maintaining prudent credit rate adjustments, banks can support economic growth while ensuring financial stability. The OJK will continue to monitor the situation and provide guidance as necessary to maintain a healthy and competitive banking environment.