T

he Financial Services Authority (OJK) is confident that domestic banks are resilient enough to face the impact of ongoing rupiah depreciation because they have adequate capital and foreign exchange liquidity, its officials have said.

'€œThey [banks] are still strong because in general, they have a long position in foreign exchange [forex],'€ OJK commissioner for banking supervision Nelson Tampubolon told The Jakarta Post on Wednesday.

The '€œlong'€ position in US dollars means the bank has an adequate level of forex liquidity, based on the calculation between its forex assets and liabilities.

The adequacy of forex liquidity is reflected in the daily net open position (PDN) ratio, which should not exceed 20 percent of its total capital, according to a Bank Indonesia (BI) regulation.

OJK deputy commissioner for banking supervision Irwan Lubis said the OJK'€™s daily monitoring had found that out of 54 foreign exchange banks, 51 booked a long position in forex with an average of around 2 to 10 percent PDN ratio.

'€œThe remaining three banks will see an impact on their balance sheets, but their capital will not decrease if their PDN ratios are under 20 percent,'€ Irwan said.

As for capital conditions, he said domestic banks booked an average capital adequacy ratio (CAR) of 10-14 percent currently, higher than the minimum of 8 percent.

Irwan said the lowest risk-based profile CAR was 11 percent, while 20 percent stood as the highest. '€œThat means all banks fulfil their required level of risk-based profile CAR, so that they will not be affected by rupiah depreciation until 14,000-15,000 per US dollar,'€ he added.

Regarding non-forex banks, Irwan said the OJK had seen improvements in five small-sized banks that were in '€œcautious'€ positions judged by a stress-test conducted in March when the rupiah started to show ongoing depreciation.

Irwan said the OJK had requested the shareholders of the five banks to inject fresh capital as a forward-looking action plan before the rupiah worsened to its present state of Rp 14,000 per US dollar.

'€œThree of five banks have injected fresh capital as of August, while the remaining two are improving their business strategies, such as restructuring their non-performing loans,'€ Irwan said.

Irwan added that capital injections had also contributed to an increase in the total capital of domestic banks, reaching Rp 730 trillion as of June, from around Rp 600 trillion by the end of last year. The increase in total capital has increased banks'€™ average CAR to 20.35 percent as of June.

The rupiah has depreciated 12 percent so far this year to its lowest level since 1998, the second worst performing currency in the region after the Malaysian ringgit. Global investors fled emerging markets and sought safe havens such as the US dollar amid China'€™s economic slowdown, yuan depreciation and an improving US economy.

State-owned Bank Negara Indonesia (BNI) president director Achmad Baiquni said his bank had calculated in privately conducted stress-tests that it would be resilient enough even if the rupiah depreciated to 16,000.

'€œOur worst case scenario is if CAR decreases to below 10 percent, but that can only happen if the US dollar skyrockets to an incomprehensible level,'€ Baiquni told the Post.

Private lender OCBC NISP president director Parwati Surjaudaja said his bank'€™s detailed stress-test had concluded that its non-performing loan and capital would be resilient enough if rupiah reached 16,000 per US dollar.