The Financial Services Authority (OJK) issued Regulation No. 5/2024 at the end of March, which focuses on determining the supervision status and addressing issues in commercial banks. This regulation is crucial as Indonesia grapples with an increasing risk of a banking crisis stemming from the depreciation of the rupiah.

The rupiah's exchange rate against the United States dollar has surged above 16,000, surpassing a critical psychological threshold and nearing the lowest level observed during the 1998 monetary crisis at 16,800.

This development triggered immediate repercussions, with major bank stocks experiencing a decline when the stock exchange resumed trading after the Idul Fitri holiday in April. For instance, on the first trading day of May, the Joint Stock Exchange Index dropped by 1.61 percent to 7,117.42. Notably, Bank Mandiri and Bank BNI witnessed significant falls of 8.33 and 8 percent, respectively, in the LQ45 index representing 45 selected companies with strong liquidity.

The global macroeconomic landscape has further exacerbated the situation, with the US grappling with soaring inflation levels well beyond market expectations and the US Federal Reserve's target of 2 percent. This high inflation makes it challenging to anticipate interest rate reductions by the Fed. Additionally, escalating tensions in the Middle East have contributed to the economic uncertainty.

Despite the rupiah's depreciation, stress tests conducted jointly by Bank Indonesia (BI) and the OJK revealed that the weakening currency has not substantially impacted bank capital. This can be attributed to national banks' favorable net foreign exchange position, with the ratio of foreign currency assets to liabilities relative to capital standing at 1 to 5 percent, significantly below BI's 20 percent threshold.

Maintaining stability and ensuring the resilience of the banking sector amid such demanding economic conditions necessitates a thorough understanding of the implications and stipulations set forth in OJK Regulation No. 5/2024.

The regulation assumes a critical role in enhancing the oversight and management of commercial banks by particularly emphasizing the identification and resolution of potential liquidity, efficiency and profitability issues. A key focal point of the regulation is its emphasis on supervisory status to ensure that banks operate within the required regulatory framework and are prepared to effectively address financial challenges.