T

he domestic banking industry appears to be in good shape entering 2015, despite recent volatility in the exchange rate, data from the Financial Services Authority (OJK) shows.

According to OJK deputy commissioner for banking supervision Irwan Lubis, its recent stress test data has revealed that ongoing exchange rate volatility will not negatively affect banks.

'€œThey [the banks] will still endure the currency challenge, even if the rupiah weakens to around 14,000 per US dollar. They will still be able to carry out their operations and meet business risk requirements,'€ he said in a press briefing on Thursday.

He added that at present, the banking industry had relatively low exposure toward foreign exchange (FX), which was partly reflected by the External Debt Statistics.

By the end of 2014, the banking sector had about US$31.32 billion in external debt, representing 10.7 percent of the country'€™s total external debt figure.

The highest amount of external debt came from non-banking sector '€” composed of non-banking financial corporations and non-financial corporations '€” with $131.52 billion or 44.9 percent of the total.

'€œTheir FX exposure in both lending and customer deposit portfolios are also lower than those in the rupiah,'€ Irwan said.

The FX lending and deposits accounted for less than 20 percent each of the banking industry'€™s total loans and third-party funds, as shown by the December banking statistics.

The rupiah slowly picked up during trading hours on Thursday, strengthening by 0.08 percent to end at 13,182 against the greenback, according to data from Bloomberg.

On a year-to-date basis, the currency had weakened by around 6.41 percent per US dollar, eventually raising concerns over the resilience of the domestic economy.

Irwan said that it would be a different ball game if the rupiah continued to fall to 15,000 per dollar.

'€œOur stress test shows that one to five smallest banks will probably see their capitals deteriorate as the result [of the weakening rupiah]. We do hope that current FX volatility won'€™t go that far,'€ he added.

Meanwhile, a new report by Standard & Poor'€™s (S&P) Rating Services '€” published on Thursday '€” said that the direct impact of foreign currency lending should be limited on Indonesian banks, citing their low exposure towards FX.

'€œTheir total net open position [net foreign currency liabilities as a percentage of total equity] has remained low over the years and was just above 3 percent as of year-end 2013. We expect the ratio to remain at this level over the next 12 to 24 months,'€ it writes.

The S&P also attributes the lenders'€™ general practice of matching FX assets and liabilities as a major reason behind the limited impact.

Separately, Ali Setiawan, HSBC Indonesia managing director and global market head, acknowledged that it had also conducted a similar stress test and that the results mirrored the OJK'€™s findings.