B

ank Indonesia (BI) will issue two new regulations in the coming week to further drive up foreign exchange (FX) transactions in the country.

Nanang Hendarsah, the deputy of BI'€™s financial task force, said in Jakarta on Friday that the new regulations, which are internally called PBIs, simplified the central bank'€™s previous regulations.

'€œWe have seven regulations that control the FX transactions of commercial banks. However, new developments require that the regulations be updated and we are compacting them into two regulations,'€ he said on Friday during the second day of the 2014 Indonesia Banking Expo (IBEX).

Some of the existing regulations were issued in 2005 and 2008, as shown by data from BI. Two BI regulations that will undergo changes are PBI No. 10/28 on FX purchase at banks and PBI No. 10/37 on netting restrictions.

Nanang said that back then, BI had created a list of assets that could be used as underlying for FX transactions. '€œThese assets are related to export import activities and investments. However, banks have often said that the list is not compatible anymore with what their clients have,'€ he said.

The Indonesian Foreign Exchange Market Committee (IFEMC) is now responsible for the formulation of a new underlying list that will be proposed to the central bank, according to Nanang.

The IFEMC is a group launched by BI early this year assigned to boost domestic FX transactions.

Its members comprise representatives of the central bank, the Financial Services Authority (OJK), the Indonesian Bankers Association and Association Cambiste Internationale (ACI) Indonesia, as well as state, private, foreign, joint venture and regional development banks.

The latest data from BI said that the amount of FX transactions in Indonesia remained lower compared to that recorded by its neighboring countries.

While Indonesia books an average US$5 billion in daily transaction value, Malaysia and Thailand post $11.05 billion and $12.78 billion per day, respectively.

Domestic FX transactions are still largely concentrated on spot market with 67 percent, followed by swap with 28 percent, forward with 4 percent and other instruments with the remaining 1 percent.

BI Governor Agus Martowardojo previously said that BI was looking to jack up the daily figure to $15 billion by 2017.

The central bank expects that the simplification of requirements will draw higher customer involvement domestically and be as attractive as FX facilities provided offshore.

Meanwhile, besides a fresh variety of assets as underlying, the new regulations will also enable customers to carry out '€œnetting'€, which is a settlement of obligations in FX trade.

'€œSay that a customer signs a three-month forward contract and he decides to roll it over, he can do so without having to provide a new underlying as long the underlying'€™s maturity period is not due,'€ Nanang said.

At present, customers are required to provide a new underlying every time they want to renew such contracts. That, according to BI'€™s and banks'€™ view, may be a deterrent to customers.