T

he liquidity of the country'€™s banking industry is manageable despite the weakening of the rupiah against the US dollar and the weak economic growth, according to a study by the Deposit Insurance Corporation (LPS).

The result of the study, called the '€œBanking Stability Index'€, was published in the agency'€™s Report on the Economy and Banking for the period of August, which shows that the country'€™s banking risks decreased in July from the previous month.

Based on the calculation of domestic banks'€™ financial report as of May, the index declined by six basis points (bps) to 100.25 in July from 100.31 in June.

'€œIn accordance with categories in the crisis management protocol [CMP], the current figure still stands at normal conditions,'€ the LPS said in its report.

Interbank and market pressures, which increased by 29 bps and 70 bps, respectively, were the two main components of the index, according to the agency.

Despite these pressures, however, the LPS found that banks'€™ liquidity as of May stood at a relatively stable level of 88 percent, as in previous months.

On the other hand, a September report released by state-owned Bank Mandiri'€™s chief economist warns of a risk of worsening liquidity in the second half of the year as a result of foreign capital outflow.

'€œWe have seen capital reversal in the Indonesian stock market since May on global market uncertainties, especially from the devaluation of the Chinese yuan,'€ Rully Arya Wisnubroto, a financial market analyst in the office of Mandiri'€™s chief economist, said in the report.

According to the report, total capital outflow from the stock market reached Rp 17.1 trillion between May and Aug. 25, with two measures of banking liquidity worsening in May as excess rupiah liquidity fell to
Rp 47.1 trillion in May from Rp 62.4 trillion in April.

The first measure of liquidity, called liquid assets relative to non-core deposits, fell to 89.95 percent in May from 94.6 percent in April, while the second '€” liquid assets relative to third-party funds '€” fell to 18.2 percent from 19.1 percent.

The banks'€™ third-party funds (DPK) would also likely be slower in the next couple of months because of decreasing deposit rates, following the slowing down of DPK growth between February and May. As a result, Rully said, the liquidity of the banking sector in Indonesia had tightened and the LDR had steadily increased from 87.58 percent in March to 88.7 percent in May.

The central bank has eased some macroprudential policies, including broadening the definition of loans-to-deposits ratio (LDR) to loans-to- funding ratio (LFR) and loosened the maximum LFR from 92 percent to 94 percent.

Bank Mandiri president director Budi Gunadi Sadikin said recently that the risk of liquidity shortage was greater for banks than the direct impact of the rupiah'€™s depreciation.

'€œLearning from the financial crisis in 2008, liquidity shortages are more threatening than currency depreciation. The current situation is not worrisome, because as economic growth slows, our liquidity in rupiah and US dollars is okay,'€ Budi said.

Adi Setianto, finance director at state-owned Bank Tabungan Negara (BTN), said the lender'€™s LDR stood at 109 percent thanks to its large mortgage portfolio, giving it a different loan cashflow to most banks.

Despite a high LDR, Adi said BTN was maintaining its LFR at 96 percent- 98 percent as it owned many debt papers, such as bonds and mortgage-backed securities.