OJK: Impact of Exchange Rate Weakening on Rural Banks Relatively Limited

Jakarta - The Financial Services Authority (OJK) assesses that the direct impact of the exchange rate weakening on Rural Banks (BPR) is relatively more limited because these banks collect funds and extend credit in rupiah and serve communities and MSMEs in the regions. Furthermore, BPRs do not conduct business activities in foreign currencies, so they have no direct exposure to exchange rate risk unlike commercial banks that have foreign exchange transactions. “However, BPRs still potentially face indirect impacts,” said Chief Executive of Banking Supervision at OJK, Dian Ediana Rae, in a written response in Jakarta on Wednesday. Dian detailed that these indirect impacts include a decline in the repayment capacity of MSME debtors who depend on imported raw materials or imported products, increased production and operational costs for small business operators due to rising prices of imported raw materials, and inflationary pressures that could reduce public purchasing power, thereby affecting the business performance of BPR debtors. “The OJK consistently encourages BPRs to strengthen resilience and apply prudential principles in facing various economic dynamics, including exchange rate volatility,” said Dian. The OJK requests BPRs to enhance monitoring of debtors with high sensitivity to exchange rate changes, especially business operators dependent on import activities or linked to global supply chains. Additionally, BPRs are asked to identify debtors beginning to experience cash flow pressures earlier so that mitigation and handling measures can be taken before credit quality deteriorates by implementing a strict early warning system. “Ultimately, strong capitalisation serves as the main cushion in facing increased risk. Therefore, BPRs need to ensure their capital levels and loan loss provisioning (CKPN) are adequate,” said Dian. He conveyed that the OJK continues to observe global economic developments, which are currently still overshadowed by geopolitical turmoil and oil prices, impacting the escalation of volatility in global financial markets and the strengthening of the US dollar index, which increases exchange rate fluctuations in emerging market countries. On an ongoing basis, the OJK also continues to conduct intensive monitoring of the banking industry’s performance developments. The weakening of the rupiah exchange rate can trigger an increase in production costs and inflation, due to the rising cost of imported goods, which can subsequently affect public purchasing power. Overall, Dian stated that the rupiah’s depreciation has not yet had a direct and significant impact on the stability of the financial services system. Specifically in the banking sector, this condition is supported, among other things, by a low Net Open Position (PDN) that is far below the established threshold. In April 2026, the PDN was at a level of 1.63 percent in a long position, far below the 20 percent threshold.