Indonesia to Improve Liquidity for Banks via Latest Finance Body

Indonesia is set to launch a central counterparty clearing house (CCP) for foreign exchange and money market transactions next week, aiming to deepen its capital markets. This initiative, led by Bank Indonesia (BI), seeks to integrate the country’s fragmented money and foreign exchange markets, improving liquidity for banks and mitigating default risks.

The CCP will enhance transaction efficiency, with an anticipated increase in transaction volumes, according to Donny Hutabarat, head of BI's Financial Market Development Department. Currently, market pricing is skewed as larger banks mainly transact with other large banks, creating inefficiencies.

The first instrument to be facilitated by the CCP will be Domestic Non-Deliverable Forwards (DNDF), with additional instruments like repo, interest rate swaps, and overnight indexed swaps to be introduced over the next five years. Non-bank entities are expected to participate from 2026 onward.

The CCP will be operated by the Indonesia Stock Market Clearing House, BI, and eight major banks: Bank Central Asia, Bank Rakyat Indonesia, Bank Mandiri, Bank Negara Indonesia, Permata Bank, Bank Danamon, CIMB Niaga, and Maybank. These shareholders will contribute to guarantee funds designed to prevent default. BI, while holding shares, will function as a regulator and supervisor alongside Indonesia’s financial services authority.

The creation of the CCP follows a 2019 regulation by BI, aligning with a G20 resolution to control derivative risks after the 2008 global financial crisis. Indonesia’s CCP structure is based on models from Japan and the UK.