Indonesian banks rush on housing loan deals

Esther Samboh in Jakarta/The Jakarta Post
Asia News Network

Jakarta (The Jakarta Post/ANN) - In an attempt to boost lending from this particular business line, several major banks in Indonesia have cut lending rates for mortgage loans to tap the rising demand for housing against the backdrop of strong purchasing power in the world's fourth largest market.

PT Bank Central Asia Tbk (BBCA), PT Bank OCBC NISP Tbk (NISP) and PT Bank Tabungan Negara Tbk (BBTN) are among the banks offering lower fixed-rate mortgage loans with maturity of at least two years.

BCA on Tuesday announced an 8 per cent housing loan rate fixed for 55 months, or more than 4.5 years, in light of the lenders' 55th anniversary. "Upon maturity, you will not be charged with the double-digit floating rate. You can ask to be offered other packages," CEO Jahja Setiaatmadja said.

BCA previously offered the lowest price ever for mortgage loans at 7.5 per cent fixed for two years, seeing soaring demands that helped the lender book more than Rp 200 trillion in overall outstanding loans, of which Rp 28 trillion were for housing loans.

Mortgage credit's 51 per cent growth supported BCA's overall 31 per cent lending expansion last year.

BTN, a state-owned lender which focuses on housing loans, tried to compete with BCA's deal as it offered 7.49 per cent rate for mortgage lending fixed for two years starting last Friday, Feb. 17 - down from 9 per cent previously.

"The interest rate cut was done in response to tight interest rate competition for the [Rp 250 million] credit ceiling," BTN president director Iqbal Latanro said. Requirements to apply for housing loans vary, but banks normally only approve houses with credit ceilings of more than Rp 250 million.

BTN's lending rates for mortgages with a ceiling of less than Rp 75 million have also been cut to almost 8 per cent from the previous 10 per cent fixed for two years. Lending rates for houses with credit ceilings of Rp 75 million to Rp 250 million are yet to be lowered because BTN cut prices in December last year to between 10.25 to 11 per cent.

OCBC NISP would also launch a new mortgage loan deal this week to offer a 9.5 per cent fixed rate for five years, director Rudy N Hamdani said on Tuesday. The bank would also offer other housing loan deals that include 8 to 8.75 per cent fixed rates for one to two years.

"We have better access to low cost funds with an overall interest rate cut and therefore we have room to lower interest rates for consumer loans," Rudy said, adding that "competition" was among the main reasons behind housing loan deals.

Standard Chartered Bank Indonesia economist Eric Sugandi said the low interest rate environment created by Bank Indonesia (BI), with the lowest ever benchmark BI rate of 5.75 per cent, is among the top reasons for banks to bring down their lending rates.

"Also, the property sector is still very prospective, so housing loans will be among banks' top agenda," Eric said, citing two different markets that banks could tap: People who buy property for investment and those who seek a long-term place to live.

BI has previously expressed concern over the rapid growth of housing loans, which could create a price bubble and trigger payment defaults. The central bank is currently discussing a policy measure with non-bank financing regulator Bapepam-LK to tighten minimum requirements for housing loan down payments.