New offshore trade and financing regulations imposed by Indonesia’s central bank on October 3 are a boon for the country’s domestic banking sector as they will increase the supply of foreign exchange (FX), says Moody’s.
The new rules—which take effect from January 2 next year—are designed to ensure that companies receive proceeds from exports through domestic commercial banks, and that they withdraw proceeds from offshore borrowings and deposit them into these domestic banks.
“The rule is credit positive for the Indonesian banking system as it will increase the supply of foreign exchange at domestic banks,” said Falemri Rumondang, an associate analyst at Moody’s in the October 10 research note. “This is particularly relevant now, given that foreign currency lending at Indonesian banks has been increasing, compared with the lows of early 2010.”
“We note that a limited supply of foreign currency in the onshore market was a factor that exacerbated wholesale funding volatility in late 2008,” believes Moody’s. “In addition, Indonesian banks are not active issuers in the offshore capital markets. Keeping the recent deterioration in global markets in mind, it is important for banks to gain access to more stable foreign-currency funding sources.”
The Indonesian government estimates that the new rule will increase onshore deposits in foreign currency by US$30 billion.