Indonesia Moves to Improve Consumer Sentiment by Easing Credit Card Regulations

Interest rate lowered from existing 2.25% to 2%

Minimum payment amount also reduced to 5% of credit balance

Central Bank Governor: "Measures to overcome COVID-19"

Plan to extend payment period for confirmed cases also underway

[Asia Economy Jakarta, Guest Reporter Choi Sujin] The Central Bank of Indonesia (BI) is easing the burden of credit card use by lowering overdue interest rates. The aim is to encourage the use of credit cards instead of cash and to improve consumer sentiment, which has been weakened by the novel coronavirus disease (COVID-19).

According to the Jakarta Globe on the 28th, BI will reduce the credit card interest rate from the current 2.25% (monthly basis) to 2.00% starting next month on the 1st, and the minimum payment amount will be significantly lowered from 10% to 5% of the total credit balance. Overdue fees will be reduced from the current 3% of the credit balance or a maximum of 150,000 rupiah to 1% or a maximum of 100,000 rupiah.

BI Governor Perry Warjiyo stated, "This is a measure to help credit card holders and businesses recover quickly from the impact of COVID-19." He added, "Indonesia's credit card interest rate is 26.6% annually, the highest in the world," and "Easing the interest rate as soon as possible will help overcome the crisis." This credit card regulation relaxation will be effective from next month on the 1st until December 31. According to BI, there are 17.6 million credit cards in circulation in Indonesia, and card payments account for about 10% of total consumer spending in Indonesia. BI also mentioned that they are planning a measure to extend the payment period if a credit card user is infected with COVID-19.

BI's decision takes into account the recent contraction in household consumption due to the spread of COVID-19. Household consumption accounts for more than half of Indonesia's gross domestic product (GDP). The government recently announced that there are 3.78 million poor households and 5.2 million unemployed people. According to BI, as of February this year, the number of credit card transactions in payment suspension due to COVID-19 reached 27 million cases, amounting to approximately 25.086 billion rupiah (about 1.65 million dollars). In March, the number of unpaid credit card transactions recorded 26 million cases.

Steve Barta, Chairman of the Indonesian Credit Card Association, said regarding BI's decision that it is expected to be beneficial in the long term for consumers and industries facing financial crises due to COVID-19. Chairman Barta pointed out that Indonesia is under mandatory social restrictions, companies are closed, and people stay indoors, causing issues with credit card payment amounts. This is leading to corporate non-performing loan problems and large-scale layoffs. The non-performing loan index of Indonesian commercial banks has been continuously rising since last February.

This year, BI has cut the benchmark interest rate by 50 basis points (1bp = 0.01 percentage points). The benchmark rate has been cut six times since last year, with a total reduction of 150 basis points. BI, which had forecast Indonesia's economic growth rate at 5.5% this year, has revised it down to 2.3%. There is also a forecast that it could fall to as low as 0.4% in the worst case. BI is considering not only easing credit card regulations but also intervening in the domestic Non-Deliverable Forward (NDF) market to counter the current rupiah depreciation. The plan is to restore the exchange rate to around 15,000 rupiah per dollar by the end of this year.

This content was produced with the assistance of AI translation services.