R

egulators are scrutinizing local banks'€™ accounts placed overseas '€” called nostro accounts '€” in an attempt to the guard stability of the banking industry.

Bank Indonesia (BI) and the Financial Services Authority (OJK) have held joint focus group discussions with banks to assess the impact of the exchange rate volatility to their operations.

'€œOne part that we are monitoring is the movement of their nostro accounts, whether they undergo a significant rise. If they do, we can take supervisory action to discover the cause,'€ he said during a press conference held by BI on Tuesday.

A nostro account is an account maintained by a bank in a foreign country using the local currency of that country. An increase in the nostro accounts may imply that there is an increase in the amount of investment made offshore as well, kept in those accounts.

However, there is concern that banks may deliberately use the nostro accounts to gain earnings by parking their excessive funds overseas, thus hurting the rupiah.

The latest data on the balance of payment (NPI) shows that in the first half of the year, the amount of currency and deposits kept offshore by the private sector '€” both banks and non-banking firms '€” stood at US$6.94 billion.

The figure jumped more than three times compared to what was recorded in the same period last year. In a previous discussion, BI'€™s executive director of statistics and monetary department, Hendy Sulistiowaty, said that banks were the primary source of most of those funds.

Separately, OJK commissioner for banking supervision Nelson Tampubolon said that the nostro account monitoring was needed to prevent banks from '€œcontributing'€ to the weakening of the rupiah.

'€œThere are several banks whose nostro accounts posted an increase and that'€™s what we are examining right now. It will not be a problem if the increases happened due to normal transactions, complete with underlying,'€ he said.

'€œHowever, they must not absorb dollars from BI'€™s market intervention and then place them offshore or do the same using the rupiah that they swap with BI,'€ Nelson added.

According to data from the OJK, banks that reported an increase in their nostro accounts are major lenders. Some of them are listed in the BUKU III category, with core capital between Rp 5 trillion ($361.51 million) and Rp 30 trillion.

Meanwhile, state lenders such as Bank Rakyat Indonesia (BRI) and Bank Negara Indonesia (BNI) have around hundreds of millions of dollars in their nostro accounts, according to their executives.

BRI finance director Haru Koesmahargyo said that BRI had about $800 million in its nostro accounts but the figure tended to decrease lately.

'€œThat is excess liquidity generated from deposits that are not fully channeled into loans. If our lending is not growing rapidly, we then reduce our nostro portfolio,'€ he said.

BNI finance director Rico Rizal Budidarmo, on the other hand, said that the amount of funds kept in its nostro accounts revolved between $400 million and $600 million. '€œIt changes from time to time, depending on our customers'€™ needs,'€ he said.