Indonesian Banks Assess Rupiah Weakness Impact

Minimal Direct Impact on Banking Sector

Indonesian banks are downplaying the potential impact of the weakening rupiah on their performance, citing that they primarily lend in USD to export-oriented companies with USD-denominated revenues. Ganda Raharja Rusli, Director of Risk, Compliance, and Legal at Allo Bank Indonesia (BBHI), emphasized that this practice minimizes the effect on both company revenues and loan repayments. The banks have also implemented mechanisms to manage foreign exchange risks, including provisions for interest payments.

Risk Management Practices

Banks are adhering to Bank Indonesia's regulations on Net Open Position and conducting stress tests to assess potential impacts of continued rupiah depreciation on their loan portfolios. Lani Darmawan, CEO of Bank CIMB Niaga (BNGA), noted that their financial structure remains predominantly in rupiah, further reducing exposure. Both banks are maintaining active communication with USD borrowers to monitor and manage potential risks.

Broader Economic Concerns

While banks feel their direct exposure is manageable, they are cautious about the broader economic implications. Ganda noted that Indonesia's economy remains heavily consumption-driven, making it vulnerable to rupiah depreciation through reduced consumer purchasing power. This could create a domino effect on the overall economy.

Market Outlook

The rupiah is expected to continue weakening, potentially breaking the Rp17,000 per USD level. Ibrahim Assuaibi, CEO of Forexindo Laba Berjangka, attributes this to both external factors like geopolitical tensions and internal factors such as the IHSG reaching all-time highs. As the rupiah weakens, the correlation with the IHSG suggests further potential depreciation.