The interbank credit limit is the maximum amount of credit one bank can borrow to another bank . This credit limit amount is an agreement between the clearing participating banks . So, for example the interbank credit limit is Rp100 billion, then bank A can only borrow that amount from bank B or other clearing participating banks.
The Purpose of Setting Credit Limits
Determination of credit limits aims to reduce credit risk. For example the bank at that time had to pay clearing to its customers, but additional funds for the transfer fee had not yet been received from other banks. In short, the determination of the credit limit is done to minimize the risk to banks that cannot meet their obligations (pay credit) to other banks.
Interbank Credit Limit in Stocks
In trading securities on the same day, one bank can only borrow funds from other banks within the interbank credit limit. But at the end of the trade, one bank may borrow more than the interbank credit limit provided that another bank borrows an equivalent amount to another bank. For example, the interbank credit limit is Rp100 billion, then Bank A can borrow from bank B in the amount of Rp150 billion, provided Bank B borrows Rp50 billion (the difference between the interbank limits) on the same trading day.