Indonesia's regulator to cap fixed-deposit rates for big banks

JAKARTA, Sept 30 (Reuters) - Indonesia’s financial regulator said on Tuesday it would impose a ceiling on the interest rates that the bigger banks can offer to fixed deposit holders after an “interest rate war” raised rates to unreasonable levels.

Banks with core capital of more than 30 trillion rupiah ($2.47 billion) can only offer a maximum of 9.50 percent, or 200 basis points above the central bank’s reference rate. For lenders with core capital of between 5 trillion and 30 trillion rupiah, the maximum rate is 9.75 percent, the regulator said.

The new rules, which will be implemented from Oct. 1, are likely to affect banks including PT Bank Central Asia Tbk , PT Bank Mandiri Tbk, PT Bank Negara Indonesia Tbk and PT Bank Rakyat Indonesia Tbk .

Indonesian banks have been raising interest rates since June 2013 to attract depositors after central bank measures squeezed liquidity in the market.

“Generally, the liquidity condition in the banking sector is still reasonable, but rising competition has pushed banks to fight for fixed deposits,” Nelson Tampubolon, executive head of banking supervision, told a news conference on Tuesday.

“We feel that the fixed-deposit interest rates in the banking sector are not reasonable. These high rates in turn will have an impact in terms of a high-cost economy, credit expansion slowdown, higher credit risk, lower economic activities and a hampering of economic growth.”

The average interest rates in August for rupiah deposits stood at 8.67 percent, around 70 basis points higher than 7.97 percent in January, Tampubolon said.

Some big banks were offering VIP clients around 11 percent, far above the 7.75 percent level insured by the Indonesia Deposit Insurance Corporation, he added.

Banks are then under pressure to pass the costs on to borrowers. In July, the average lending rate was around 11.25-13.30 percent for corporations and 16-23 percent for small and medium businesses. ($1 = 12,160.00 rupiah) (Reporting by Eveline Danubrata and Gayatri Suroyo; Editing by Miral Fahmy)