State Banks Eye Bilateral Loans, Issue Debt Papers

State-owned lenders plan to seek extra funds from alternative sources as banking liquidity is predicted to tighten early next year amid competition with government bond issuance.

Bank Mandiri finance and strategy director Kartika “Tiko” Wirjoatmodjo said the lender was anticipating pressure on liquidity in the banking system as the government planned to continue its “front loading” strategy in the first quarter of next year.

“Front loading” refers to the government’s long-term scheme of offering as many bonds as it can at the beginning of the year in order to secure immediate funds. 

With such a strategy, the placement of funds in a bank’s time deposits is predicted to shift to government bonds as the debt papers will offer higher yields, Tiko said.

“If the deficit target next year gets larger and local sovereign bond issuance increases, liquidity in banks will get slightly tighter in the first quarter because our time deposit rates will compete with yields in government bonds,” he said recently.

Tiko said the tighter competition in liquidity next year would mostly affect “special rates”, a term given to time deposit rates with a level above the maximum interest rate guaranteed by the Deposit Insurance Corporation (LPS) often offered to customers with a large amount of funds.

As of now, the LPS only guarantees deposits with amounts below Rp 2 billion (US$146,897) and which carry a maximum 7.5 percent interest rate. Meanwhile, As of Sept. 10, Indonesia’s 10-year government bond yield stood at 9.09 percent. 

“Special rates [for time deposits] will probably rise slightly by 25 basis points [bps] in the first quarter next year if there is tight competition,” Tiko said.

With a slight squeeze in liquidity, Tiko said Mandiri was planning to seek non-traditional funds worth at least $500 million from bilateral loans, which he considered “cheaper in terms of rates.” Tiko went on to say that such loans would be made “available in several tranches, rather than [from] issuing debt papers that provide funds in bulk.”

“We have proposed this in our 2016 business plan to the Financial Services Authority [OJK], including bilateral loans for export financing purposes from international export credit agencies,” he said.

Bank Negara Indonesia (BNI) president director Achmad Baiquni expressed a similar opinion that bilateral loans were a type of long-term, low-cost alternative funding mechanism that could help the lender during next year’s period of tightened liquidity.

Baiquni said BNI had arranged plans to seek bilateral loans within the range of $500 million to $1 billion as well as to continuously monitor the capital market to decide the best time to issue a senior bond in 2016.

“The need for long term funds will depend on our loan growth, and if it grows around 14 to 16 percent, third-party fund growth should follow suit. However, we should seek extra funds if our regular third-party funds are not able to do that,” he said.

Baiquni noted that some sectors had started to show a rising demand for loans such as the oil-and-gas, mining and plantation sectors.

Bank Tabungan Negara (BTN) treasury director Iman Nugroho Soeko said the lender also predicted that liquidity would tighten slightly next year as the economy expanded.

Iman said BTN was considering issuing debt papers such as a senior bond, asset-backed securities (KIK-EBA) worth Rp 1 trillion worth and a negotiable certificate deposit (NCD) next year to provide extra fresh money alongside traditional third-party funds.

Source:, 28/12/15 
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