Indonesian regulators investigating surge of nostro accounts
(25 August 2015 – Indonesia) Nostro accounts – local banks’ accounts placed overseas are being scrutinised by Indonesian regulators as it examines ways to guard the stability of the banking industry.
Bank Indonesia (BI) and the Financial Services Authority (OJK) held joint focus group discussions with banks to assess the impact of the exchange rate volatility to their operations.
A nostro account is an account maintained by a bank in a foreign country using the local currency of that country.
There has been an increase of nostro accounts meaning there could be an increase in the amount of investment make offshore kept in those accounts as well.
The regulators are investigating whether banks are deliberately using nostro accounts to gain earnings by parking their excessive funds overseas which hurts the local currency.
The latest data on the balance of payment (NPI) shows that in the first half of the year, the amount of currency and deposits kept offshore by the private sector — both banks and non-banking firms — stood at US$6.94 billion (A$9.56 billion).
The figure jumped more than three times compared to what was recorded in the same period last year, most of these belonged to the country’s major lenders.
OJK commissioner for banking supervision Nelson Tampubolon said that the nostro account monitoring was needed to prevent banks from “contributing” to the weakening of the rupiah.
“There are several banks whose nostro accounts posted an increase and that’s what we are examining right now.
It will not be a problem if the increases happened due to normal transactions, complete with underlying,” he said.
“However, they must not absorb dollars from BI’s market intervention and then place them offshore or do the same using the rupiah that they swap with BI,” Nelson said.
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