OJK Confident Banks Can Face Middle East Conflict Risks, Ensures Strong CAR

Jakarta (ANTARA) - The Financial Services Authority (OJK) is confident that the banking industry is capable of facing and overcoming the risks or spillover effects of the Middle East war, while ensuring that the capital adequacy ratio (CAR) remains in a strong position to absorb risks.

OJK’s Executive Head of Banking Supervision, Dian Ediana Rae, noted that the banking industry’s capital adequacy ratio (CAR) currently stands at around 25-27%, far exceeding international requirements.

“We have faced worse situations than this before, such as COVID, which lasted for years, but we survived with policies. So there’s nothing to worry about too much because we’ve handled more severe situations,” she said when met at the House of Representatives (DPR RI) in Jakarta on Wednesday.

Dian explained that the spillover impact of the Middle East conflict on the national financial system, including banking, depends on the duration of the conflict.

All such implications, Dian stated, are being and will continue to be analysed in depth, including potential market risks that the banking sector will face. Monitoring is conducted regularly, even down to individual banks.

“Voluntarily, the banks conduct stress tests. And we in our team (OJK) do the same to perform stress tests,” she said.

When asked about the projection for net interest margin (NIM) this year, Dian said that its development still depends on the economic situation and various influencing factors, such as interest rates, deposits, credit disbursement, and market risks including the possibility of rising yields.

When asked whether the industry’s NIM could increase this year, Dian also stated that it cannot yet be confirmed because the economic conditions and business situation need to be viewed more comprehensively.

“Our economic conditions, business situation, and others, we have to look at as well. Our hope is, of course, that NIM will improve. But I don’t dare to say (whether NIM has the potential to rise or fall) before I do a deeper analysis,” she said.

Previously, in facing the increasing geopolitical risks in the Middle East, the National Banks Association (Perbanas) assured that the banking industry has tightened prudential measures, including risk management frameworks and prudent banking principles.

This is reflected in sustained credit growth, adequate liquidity, and strong capitalisation.

Perbanas noted that several mitigation steps have been and continue to be strengthened by the banking industry in Indonesia.

Some of these steps include sectoral stress tests and strengthening early warning systems to anticipate potential declines in credit quality.