Foreign Banks in Indonesia Post Large Profit on Rupiah Depreciation
According to data from the Financial Services Authority (OJK), foreign banks operating in Indonesia have posted great profit growth in the January to May 2014 period. Combined, these foreign banks have recorded a 94.36 percentage point growth (year-on-year) in profit to IDR 3.79 trillion (USD $323.9 million) in the first five months of this year. The reason behind this jump in profit is the sharply depreciated rupiah exchange rate. Over the course of 2013, the rupiah fell over 25 percent against the US dollar.
Banks that conduct business using US dollars (or other foreign currencies) have therefore more rupiah-denominated profit after exchanging the foreign currencies for rupiahs.
In the third and fourth quarters of 2014, rupiah-denominated credit is expected to slow as the central bank’s benchmark interest rate (BI rate) is relatively high (7.50 percent) and may be raised again to anticipate the threat of capital outflows amid the looming US interest rate hikes in (early) 2015. Moreover, the central bank (Bank Indonesia) intends to limit credit expansion in Southeast Asia’s largest economy to the range of 15-17 percent (compared to +20 percent in previous years) in order to avert ‘bubbles’ in the economy, inflation, as well as reduce pressure on the wide current account deficit. In the first five months of 2014, credit growth in Indonesia was recorded at 17.87 percent (year-on-year) to IDR 3,403 trillion (USD $290.9 billion).
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