The sector claims clients don't want to borrow in the first place.

The Indonesian banking sector is countering central bank pressure to further lower interest rates for their customers, as it believes that clients don’t want to borrow in the first place, reports Bloomberg.

Loans shrank in October for the first time on record, down 0.47% from the year-earlier period. Bank Indonesia governor Perry Warjiyo said the contraction was due to lenders’ risk-averse attitude and could have been avoided if they had lowered rates in line with central bank easing.

Whilst the central bank has cut its key rate by 225 basis points since June 2019 to a record-low 3.75%, PT Bank Central Asia, the largest lender by market value, has eased rates for customers by only about 100 basis points during the same period.

Bank Rakyat has slashed borrowing costs by 25 to 50 basis points this year, short of the 125 basis points the monetary authority has cut policy rates in 2020.

The sector has reason to hesitate: non-performing loans have stayed above 3% since May as individuals and companies struggle to repay debts, which could put pressure on banks’ balance sheets.

Here’s more from Bloomberg.