Jakarta, CNBC Indonesia – The Financial Services Authority (OJK) opened up about why the net interest margin (NIM), aka the net interest margin of banks in Indonesia, is so high compared to other countries in the world.
“Operational costs are very high. So what we have to understand from banks is not only that the NIM is high, but the operational costs are indeed high,” said Deputy OJK Board of Commissioners, Mirza Adityaswara, in the OJK FGD event, in Balikpapan, (3/3 /2023).
One of the things that makes bank operational costs in Indonesia high is the provision or provision for non-performing loans (NPLs), aka large bad loans. Meanwhile, another reason is the need for costs related to human resources, operations and opening branches and head office which are also high.
“If we look at it, in Indonesia the banking NPL is normally at 3% – 5%. So the provision costs that must be prepared by the bank are also more or less that big. If only we could reduce the NPL to 1% or 2% for example, of course it would reduce their operating costs,” continued Mirza.
According to him, when referring to countries such as Singapore and Hong Kong, the average NPL rate for banks there is around 1%. Although, regionally it is somewhat different from Indonesia, which is an archipelagic country.
“So one way to reduce non-performing loans is with better credit information. For example, by utilizing credit bureaus, this will certainly make bank credit better,” said Mirza.
As for human resource operations and branches, according to him, digitalization can be handled. This strategy is said to be able to reduce operational costs, which in the future will affect the imposition of banking interest costs.
“Another thing that can be done is competition. The more banks disbursing mortgages, the lower the lending rate. The same goes for other loans,” Mirza concluded.
(ayh/ayh)
