P

ublicly listed lender Bank Mandiri expects to secure more hedging contracts from local companies later this year as financial risks are growing as a result of the further depreciation of the rupiah against the US dollar, a bank executive has said.

Mandiri treasury and market director Pahala N. Mansury said the bank was developing new hedging and derivative products to cater to its corporate clients'€™ needs.

'€œA lot of them currently opt to use forwards, but more and more companies are beginning to set their sights on cross currency swaps because the latter enables them to hedge businesses against both currency and interest rate fluctuations,'€ he said recently.

The need to hedge has arisen as a result of the rupiah'€™s depreciation against the US dollar, which has caused not only higher costs for many companies, particularly importers, but also an increase in their foreign exchange losses.

The rupiah has depreciated by 10.6 percent per US dollar from the beginning of the year and closed at 13,758 on Wednesday, according to Bank Indonesia (BI) data on the Jakarta Interbank Spot Dollar Rate (JISDOR).

Pahala said a majority of the bank'€™s hedging clients were private firms, but it hoped to see state-owned enterprises (SOEs) jump on the bandwagon.

Among companies that have inked hedging contracts with Mandiri are state-run electricity firm PLN and state-owned oil and gas firm Pertamina.

PLN signed a US$500 million hedging contract with Mandiri in April, while Pertamina signed a similar contract worth $1 billion with the bank in May.

Pahala added that a BI regulation on offshore borrowings was also expected to trigger the signing of more hedging contracts. The regulation, which was issued late last year, requires companies to have hedged at least 20 percent of their short-term dollar debts by the end of 2015 and 25 percent by the end of 2016.

Mandiri data shows the lender booked about $2 billion in derivative-related contracts within the first six months of the year, whereas it ended 2014 with $3 billion.

Meanwhile, Mandiri finance director Kartika '€œTiko'€ Wirjoatmodjo said the currency depreciation would not significantly impact Mandiri'€™s business, citing its low exposure to foreign-denominated or FX loans.

'€œFX-related loans only account for about 15 percent of our total lending portfolio,'€ he said.

According to its first-half financial report, its FX loans reached Rp 76.9 trillion ($5.59 billion), while its FX loan-to-deposit ratio (LDR) revolved at 61.1 percent. A majority of the loans were channeled to the manufacturing sector, followed by oil and gas, and mining.

Tiko said that Mandiri had carried out a stress test and claimed that its current capital was sufficient to withstand further rupiah depreciation to a level of 14,000 against the greenback.

'€œWe have a capital ratio of 17.7 percent and that is strong enough to cope with possible currency loss. Hopefully the negative sentiment on the rupiah will be temporary,'€ he said.