BI Rate Set to Rise, Banks Begin Calculating the Impact
Jakarta, Kompas.com – The banking sector is beginning to calculate potential impacts if Bank Indonesia (BI) decides to raise the policy rate (the BI Rate) amid pressure on the rupiah’s exchange rate. SMBC Indonesia President Director Henoch Munandar said banks are basically prepared to face various monetary policy scenarios, including the possibility of an increase in the policy rate. Banks already have their own risk management in place, so the potential BI Rate rise anticipated by many has certainly been priced in by banks.
Given that the rupiah has continued to weaken throughout May 2026.
Henoch disclosed that one of the main impacts banks will calculate is an increase in the cost of funds, as banks seek to strengthen the management of cheap funds to minimise the impact of a higher BI Rate. Consequently, expanding transactional banking has become one of the measures SMBC Indonesia is taking to ensure funding structures remain more efficient. ‘If you rely on only one source such as deposits, banks will have to re-evaluate funding costs if the central bank raises rates,’ he said.
In addition to funding costs, a too-high increase in the policy rate is also seen as capable of increasing credit risk in the banking sector, because a BI Rate hike would be followed by higher lending rates, including loan rates, which could affect borrowers’ ability to meet debt obligations. Therefore, according to Henoch, banks need to strengthen risk management and conduct resilience tests or stress tests against various possible economic pressures, from rupiah weakness to rate hikes. ‘That is why I said we must organise our risk management to gauge the resilience of our borrowers’ ability to anticipate rate rises,’ he said.
On the other hand, Henoch believes Indonesian corporations are currently relatively better prepared to face US dollar volatility than during the 1998 financial crisis. Companies are now more disciplined in managing foreign currency borrowings and in hedging. The practice of companies with rupiah revenue but borrowing in US dollars without hedging has diminished, as regulation in the financial services sector has strengthened. ‘That era has receded significantly because there are many regulations in OJK that require us to look at funding sources. If exporters are 80 per cent in foreign currency, perhaps 50 per cent of their borrowings can be in foreign currency. But if 100 per cent in rupiah, we must arrange rupiah-denominated loans,’ he said.
Yet, Henoch cautioned that exchange-rate volatility must still be watched, especially given the industry’s ongoing reliance on imported goods and raw materials. Nevertheless, the industry-wide banking sector remains with a sufficiently strong capital cushion to withstand external pressures. He pointed to the capital adequacy ratio (CAR) of the banking industry currently around 20 per cent. ‘As long as shocks remain manageable, there will obviously be a reduction in risk. But I believe the cushion remains solid, and I hope it stays resilient. Just not every year,’ he said.