Fitch Ratings says in a new report that the strong profitability and capitalisation of Indonesia’s banking system would offer protection against heightened market volatility from higher US interest rates.In addition, the country’s top four banks have shown resilient profitability despite the greater volatility during 2014, underpinned by their funding franchise. Second-tier banks’ profitability, however, deteriorated due to margin pressures and higher impairment charges.Although Indonesia’s greater exposure to foreign-currency loans compared with other Asian countries is a source of risk, the exposure has been relatively stable and does not appear excessive. This exposure has partly funded the commodity sector, which has been hit by both a weaker currency and falling commodity prices.The proportion of foreign-currency loans in the overall loan mix is highest at foreign-owned banks, reflecting their roles in their respective international or regional banking groups.

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