Foreign banks develop onshore currency market<\/p>\n
SINGAPORE (Dow Jones): The demise of the dollar-rupiah cross
\ncurrency swap market offshore has led several major foreign banks
\nin Jakarta to create an onshore market to trade in dollar-rupiah
\ncross currency and rupiah interest rate swaps, industry sources
\ntold Dow Jones Newswires.<\/p>\n
The offshore dollar-rupiah cross currency swap market perished
\nas spot rupiah trading ground to a halt after Bank Indonesia
\nimplemented new foreign exchange restrictions in mid-January.<\/p>\n
Foreign banks in Jakarta met about a month ago to discuss the
\nformation of an onshore swap market, which market watchers said
\nwill take off very slowly.<\/p>\n
"Near-term growth restraints are significant," said Michael
\nProulx, an analyst at Prebon Yamane.<\/p>\n
When foreign banks responded to the new curbs on offshore
\nrupiah trading by setting up a rupiah non-deliverable forward
\nmarket, Bank Indonesia didn't show much enthusiasm.<\/p>\n
But the central bank is showing signs of being more receptive
\nto the genesis of a swap market in Jakarta, bankers said.<\/p>\n
The central bank has less to worry about in this case, as the
\nabsence of an offshore swap market deprives participants in
\nJakarta of arbitraging opportunities, market observers said.<\/p>\n
Furthermore, the instrument will likely be used mainly for
\nhedging and not speculation, dealers said.<\/p>\n
"This is one of the products that customers need for hedging.
\nAs long as you use it for that purpose, I don't see why they
\nwouldn't allow it," said a Jakarta-based dealer at a large
\nEuropean bank.<\/p>\n
"Bank Indonesia would welcome this - it's a risk management
\ntool, which would help even the local banks to manage their
\nbalance sheets," said another Jakarta-based dealer at a European
\nbank.<\/p>\n
After shutting down their dollar-rupiah cross currency swap
\ndesks in Singapore and Hong Kong, a few of the foreign banks have
\nalready set up new cross currency swap desks in Jakarta to meet
\ntheir customers' hedging requirements.<\/p>\n
Meanwhile, more banks have ventured into the rupiah interest
\nrate swap market, offering quotes to their customers since early
\nMarch, though no trades have been reported so far, dealers and
\nbrokers said.<\/p>\n
"We have banks that are willing to support prices, but
\nnobody's dealing in them," said Proulx at Prebon Yamane.<\/p>\n
"I presume that could be due to the fact that spot rupiah has
\nbeen so volatile that swaps have blown through the top," said a
\nthird dealer at a European bank.<\/p>\n
Foreign banks will likely dominate trading in the onshore swap
\nmarket, experts said. The likelihood of "ring fencing" - which
\nlimits the liability of foreign banks' head offices for
\ntransactions - will likely deter trading between foreign and
\nlocal banks.<\/p>\n
Several leading foreign banks have moved to insert new clauses
\nin the standard agreement of the International Swaps and
\nDerivatives Association detailing the conditions when head office
\nliability doesn't apply, such as in times of a debt moratorium or
\nwhen capital controls are imposed.<\/p>\n
"We won't see too many Indonesian banks involved because they
\ndon't have the credit rating to trade with offshore parties,"
\nsaid Proulx.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/foreign-banks-develop-onshore-currency-market-1447893297",
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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