OJK: Banks Can Meet Foreign Exchange Needs Without Triggering Exchange Rate Volatility
Jakarta (ANTARA) - The Financial Services Authority (OJK) views that the banking sector has ample room to meet customers’ foreign exchange (FX) needs without increasing vulnerability to exchange rate volatility.
This is in line with the banking sector’s Net Foreign Exchange Position (PDN), which remains within prudent limits at 1.46% in February 2024, still far below the threshold.
“OJK ensures that banks have strong and adequate FX liquidity risk management, including through regulations and monitoring of liquidity ratios such as the foreign exchange Liquidity Coverage Ratio (LCR) and PDN monitoring to assess the sufficiency of banks’ buffer capacity in meeting short-term FX needs or potential market pressures,” said OJK’s Executive Head of Banking Supervision, Dian Ediana Rae, in a written response in Jakarta on Friday.
This is done to ensure that the availability of FX liquidity in the domestic banking sector remains adequate, particularly to serve the needs of corporations with foreign debt obligations.
Such coordination is aimed at maintaining domestic FX market stability, among other things through monetary instruments such as swaps, repos, and market interventions to ensure that FX liquidity adequacy in the financial system remains maintained.
Furthermore, OJK also urges banks to implement prudent asset and liability management (ALM), including maintaining adequate balance between FX funding sources and FX credit disbursement.
In addition, banks are encouraged to expand and diversify FX funding sources, both through FX third-party funds (DPK), interbank loans, or utilisation of access to global markets.
On the other hand, OJK encourages corporations with foreign debt to consistently apply prudence principles such as hedging obligations, liquidity adequacy, and maintaining debt quality and ratings to mitigate exchange rate risks and funding risks.
“With a combination of internal banking strengthening, policy synergy and coordination, and risk management on the corporate side, OJK ensures that FX liquidity needs can still be met without disrupting the overall financial system stability,” said Dian.