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Jakarta (ANTARA News) - Bank interest rates may rise following the central bank`s decision recently to raise the reserve requirement (GWM), a banker said here on Tuesday.

"As according to observers there will be dry liquidity of around Rp50 to Rp60 trillion. There will possibly be a rise in the interest rate because not all banks are in the position of have the liquidity to meet the GWM regulation," Bank Mandiri`s Managing Director of Risk Management, Sentot A Sentausa, said here on Tuesday.

He predicted the increase in the rate of interest in his bank would be around 10 to 15 basis points after the GWM hike is effective.

He said he understands that Bank Indonesia`s aim was to overcome excess liquidity and not to increase interest rates but the rise of interests would likely occur.

"The aim of BI is overcoming excess liquidity by putting it in the GWM and not for increasing interest rates but the side effect would be like that as not all banks are ready to meet it," he said.

Besides increasing the GWM Bank Indonesia has also imposed a loan-to-deposit range that had to be met by banks to avoid receiving additional GWM rise.

In connection with that Sentor predicted that his bank would not be able to meet the range target.

"We are challenged to meet the LDR by March 1, 2011. Bank Mandiri will not be able to meet the lowest 78 percent level in the range and so we will certainly get a penalty. But it doesn`t matter. For us it is better to assure the quality of credits rather than racing to meet the LDR requirement as our business also requires maintenance of the quality of the credits. We will strive to meet the LDR requirement ahead," he said.

He said it would be too risky for Bank Mandiri to spur credits in three months to meet the LDR requirement. "Let us say we have excess liquidity and then increasing credits until Rp40 trillion within three months. That would be too risky as the demand is not always there. It is not only about rates but also undisbursed loans which are still big due to infrastructural problems," he said.(*)

Editor: Heru
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