Banks: Overall Indonesian Banks have moderate foreign exchange exposure

Following is from Fitch Ratings Report

''Fitch Ratings believes the credit profiles of most major Indonesian banks will be resilient to rising pressures on the rupiah and a more challenging operating environment, as reflected in their Stable rating Outlooks.

The banks' resilience is mainly due to the modest proportion of foreign-currency loans and low net open foreign-currency exposure at the banking system level, strong standalone loss-absorption cushions, and - in some cases - firm backing from highly rated foreign parents.

The major Indonesian banks have generally become more selective in extending foreign-currency loans over the years, focusing on borrowers that generate income in matching foreign currencies. In response to the potential decline in asset quality amid more challenging economic conditions, the banks have taken measures to identify vulnerable borrowers, step up monitoring, and explore restructuring solutions for viable businesses. The banking system's foreign-currency loans form 15.5% of total loans as at end-June 2013, around its historical low.

Foreign-currency loans have been funded predominantly by matching foreign-currency deposits, with the loans/deposit ratio of the banking sector remaining below 100%. The foreign-currency net open position exposure of the banking sector has been at an average 2% of capital over H113, well below Bank Indonesia's limit of 20%. This helps protect against impairments stemming from a sharp depreciation of the rupiah, which has fallen more than many other Asian currencies over mid-2013.

Fitch expects the loss-absorption cushions of most Indonesian banks to remain strong. Their core operating profitability is strong and the average Tier-1 capital adequacy ratio is around 16%. Many major foreign-owned banks tend to have lower core capital buffers than that, but Fitch believes they are likely to benefit from extraordinary support from their highly rated parent banks.''