Bank Indonesia to regulate lending among banks

The country's central bank wants to discourage stockpiling of high-interest notes by enforcing standard repurchasing agreement.

The standard, in line with an international Global Master Repo Agreement (GMRA), is currently being processed by Bank Indonesia and the Ministry of Finance to facilitate a more secure money market, according to a report in The Jakarta Globe.

Bank Indonesia Deputy Governor Budi Mulia said the new agreement would even out the level of collateral required by borrowers to receive loans. This would remove a large amount of the uncertainty between bank lending.

A repurchase, or repo, agreement is a financial instrument in which a borrower promises to buy back a security surrendered to lenders as collateral.

The bank hopes the standard would lower down banks' risk perception and persuade them to begin to lend to each other over the longer term, rather than short-term loans. Budi said around 80 percent of interbank transactions currently were in overnight maturity instruments that banks use to cover daily shortfalls in their cash flow.