SBI, and guaranteed deposit rate - Nomura

Bank Indonesia will no longer hold auction for SBI with duration shorter than 9 months starting Feb11. This follows similar measures for 1 month SBI in Aug10 and 3 months SBI in Nov10. We see this as a continuation effort of Bank Indonesia to manage hot money flow to Indonesia.

Indonesia Deposit Insurance Corporation raised the guaranteed rupiah deposit rate from 7% to 7.25%. This will allow smaller banks to raise deposit rates in effort to raise fund and it is yet to see if larger banks will be force by competition to raise deposit rate. Note that liquidity is tightening as loan to deposit ratio continue to normalize/rises and BI has increased minimum reserve requirement. BI has increased the minimum reserve requirement for rupiah from 5% to 8% in Nov10 and the dollar based reserve requirements will be increase from 1% to 5% in Mar11 and to 8% in Jun11. Additional 0.1% reserve requirements for every 1% LDR below benchmark of 78% LDR is also applied to banks.

LDR for the banking system is currently around 75%…BCA is at the low-end of 51% (Mandiri and BNI around 70%) and hence skews the average…we would think the median average is now probably in the 85% region…Danamon is already above 100% while Rakyat has increased from 80% at end-2009, to 88% as at 3Q10. So, liquidity is going to be an issue for some banks if loan growth remains strong and other sources of funds such as debt (used a lot by Danamon) become more expensive… (for more flavor please contact our banking analyst Anand Pathmakanthan