Indonesian bank's rising average rates mirror higher policy rates

But net interest margins fall.

The average rates of Indonesian commercial banks went up by 248, 273 and 218 basis points (bps) in one-, three- and six-month time deposits, respectively.

According to a research note from Moody’s, the bps increase as of March 31 reflect higher policy rates.

The increase is also significantly larger than the increases in policy rates between June 2013 and November 2013, the report said.

However, the report noted that system-wide net interest margins dropped to 4.3 percent by end-March 2014 from the average 5.4 percent from 2012 to 2013.

The report also said Indonesia does not have a significant domestic market for wholesale bank funding that can be an alternative to funding loans with deposits.

Here’s more from Moody’s:

As for bottom-line profitability, we estimate that a 100 basis point increase in time-deposit rates will reduce our rated banks' average return on equity by three percentage points.

Nevertheless, while funding pressures are affecting banks across the system, we note that systemic liquidity risk remains low.