Measuring Banking Resilience in Face of Rupiah Depreciation

Penulis: Martha Ruth Thertina

13/9/2018, 11.05 WIB

The sharp weakening of the rupiah against the US dollar poses a risk to banking stability, but banks have enough muscle to face the challenges.

rupiah dolar
Elnur Amikishiyev |

The prolonged weakening of the rupiah will not trigger a banking crisis, supported by strong capital and good environment conditions. However, banks still face threats from the possible deterioration of liquidity and quality of banking assets.

According to the Bloomberg Generic Composite Rate Index, the rupiah exchange rate on the global foreign exchange spot market on Wednesday (5/9) hit its worst level of Rp 15,081 per USD, eventually closing at Rp 14,938. The rupiah exchange rate on the futures market (forward) soared for a one-month period hitting Rp 15,100 per USD, and Rp 15,400 for a three-month period.

Your Email Has Been Registered
sorry there was a problem signing you in
Please Fill Email Address
Fill Email Correctly
Please type the Captcha correctly

Although the Jakarta Interbank Spot Dollar Rate (JISDOR) was Rp 14,927 per USD at close on Wednesday (5/9), the selling rate in the banking sector exceeded Rp 15,000. As of Wednesday, the rate was Rp 15,150 at Bank CIMB Niaga, Rp 15,100 at Bank Central Asia (BCA), and Rp 15,012 at Bank Mandiri.

The rupiah exchange rate has dropped more than 10 percent from the end of December 2017 to last Wednesday, the biggest exchange rate depreciation in Asia. Encouraging sentiment from economic dynamics was mainly driven by the gradual increase in the US interest rate and the trade war between the US and China. Domestically, negative sentiment came mainly from the widening of the current account deficit.

The question is, will the exchange rate crisis spread to the financial sector as happened in countries such as Turkey? Financial Services Authority (OJK) Chairman Wimboh Santoso said the regulator had carried out stress tests on national banks with a rupiah exchange rate of up to Rp 20,000 per USD. The results show banking conditions are still quite strong. Under the analysis of international rating agencies, there are four indicators to measure banking vulnerability against pressure.

Operating environment

According to Moody’s Investor Service, economic growth will reach 5.2 percent in 2018 and 2019, slightly stronger than last year’s 5.1 percent. This will support banking operations in the next 12-18 months so loans could grow by 10-12 percent, higher than last year’s realisation of 8.2 percent.

Loan growth at the end of June stood at 10.75 percent on an annual basis. Small banks in the BUKU I category with core capital of less than Rp 1 trillion recorded the highest loan growth of 16.47 percent on an annual basis.

Medium banks in the BUKU III category with core capital of Rp 5 trillion to less than Rp 30 trillion posted 13.04 percent growth per year. Large banks (BUKU IV) with core capital above Rp 30 trillion noted loan growth of 11.64 percent. Small banks (BUKU II) with core capital of Rp 1 trillion to less than Rp 5 trillion saw loan growth of 2.4 percent.


Moody’s says bank capital in the future has the potential to remain strong. The banking capital adequacy ratio in Indonesia is said to be the highest in Asia. Moody’s also said rising income and falling loan costs would enable banks to generate sufficient capital to accelerate asset growth.

The banking capital adequacy ratio (CAR) was 22.01 percent in June, above the safe limit of 8 percent. The high CAR has spread from small and medium banks to large banks. These conditions not only provide flexibility for banks to boost their lending, but also show their readiness to overcome the pressures.

Asset Quality

Moody’s predicts asset quality is going will be stable over the next 12-18 months, as a stronger economy boosts corporate income growth. The non-performing loans (NPL) ratio and restructured loans will remain below their highs in 2016, after a significant decline in 2017, sustained by loan quality improvement in medium and large banks.

The gross NPL ratio shrunk to a 2.67 percent of total loans in June after being 3 percent in 2016 and 2017. This was far below the safety limit set by the authority at a maximum of 5 percent. The NPL ratio of large banks (BUKU IV) was 2.42 percent, while medium banks (BUKU III) noted a ratio of 2.67 percent.

The NPL ratio of small banks (BUKU I and II) was higher than the banking industry at 3.2 percent and 3.4 percent, respectively. Despite being high, they were still below the safe limit: a net NPL of 5 percent of total loans.

Domestic banking exposure to loans in foreign currencies is deemed moderate. Foreign currency loans reached Rp 751.73 trillion, surging 16.46 percent on an annual basis. However, the portion of total bank loans was only 15.11 percent. Although the growth of foreign currency loans was high, the NPL ratio remained under control and better than the previous two years.


Banking forex liquidity needs to be at a record level. The banking LDR in June was 92.76 percent, the highest since July 2014. Tightening occurred in line with the low growth of third party funds (DPK) amid increasing loan growth. As of June, the DPK grew only 7 percent. In addition, there were foreign capital outflows.

Medium banks (BUKU III) experienced the tightest liquidity tightening with LDR of 99.8 percent, while BUKU IV, II and I had LDR of 89.4 percent, 89.3 percent, and 79.8 percent, respectively. The LDR of mixed and foreign banks was much tighter at 135.55 percent and 125.05 percent, respectively.

Moody’s said there is the potential for liquidity easing along with rising banking deposits. However, Bank Mandiri’s economist team believes liquidity tightening continues as sluggish liquidity is not only reflected in the high LDR, but also the placement of banking funds in BI instruments. As of the end of August, the placement of funds was Rp 220 trillion, lower than Rp 269 trillion at the end of July.

The ratio of bond ownership to assets in BUKU I and II was small at 3.9 percent and 6.2 percent, which was below the ratio in BUKU III and IV at 8 percent and 8.9 percent. This shows liquidity risk in small banks is higher due to the ability to seek short-term funding from the interbank money market, and BI’s repo instrument is smaller.

Bank Mandiri’s economist team also notes that banks should boost third party funds to grow higher in order to offset loan growth. “This is to keep the LDR under control below BI’s upper limit of 92 percent.” The government could also accelerate the realisation of spending and reduce the issuance of rupiah bonds.