Banking - OJK urges banks to begin adjusting interest rates

Banking - OJK urges banks to begin adjusting interest rates When the benchmark interest rate (BI Rate) decreases, it generally leads to a downward trend in bank loan interest rates, though with a slight delay. In July 2025, the average interest rate on rupiah loans dropped by 7 basis points compared to the previous year, especially for productive loans. The Financial Services Authority (OJK) expects this trend to continue through 2025. They see room for further rate cuts, anticipating global interest rate declines and a reduction of the BI Rate to 5% by August 20, 2025. The OJK is urging banks to gradually adjust their interest rates to align with market conditions and avoid unhealthy competition. Banks are also being asked to be transparent with consumers and protect them. Despite banks becoming more conservative with their targets due to changing macroeconomic conditions, the OJK projects that the banking sector will remain stable in 2025. While overall credit growth may be slightly more moderate than originally planned, banks are taking a cautious approach by focusing on low-risk segments and continuing to lend to stable sectors that are important to the economy. (Source : Kontan) Comment : Banks' ability to grow their net interest income is crucial for their overall performance. This task is particularly challenging given the current environment of softer loan growth and lower loan yield expectations. To overcome this, banks are focusing on managing their funding costs, which is a key factor in maintaining profitability, in our view. In terms of lending, we believe banks are being strategic and selective. Prioritizing loans to sectors that are significant contributors to the economy and have strong growth prospects will likely become one of banks' several strategies. As we await the third quarter of 2025 results, we maintain our "Overweight" stance on the banking sector, with stock pick pecking orders BBCA > BRIS > BMRI.