...Indonesia's Large Banks Well Positioned for Higher US Interest Rates Fitch Ratings expects the strong profitability and capitalisation of Indonesia's banking system ¡ amongst the region's highest (chart 1) ¡ to offer protection against heightened market volatility from higher US interest rates. In particular, profitability at the country's top four banks has shown resilience despite the greater volatility during 2014, underpinned by their funding franchise. Second-tier banks, however, suffered a deterioration in underlying profitability (chart 2) due to margin pressures and higher impairment charges. This suggests greater sensitivity to market volatility for the less systemically important banks, and we expect divergence in the performance trend to play out further in 2015. Indonesia's greater exposure to foreign-currency loans than other Asia countries (chart 3) is a source of risk, but the exposure has been relatively stable and does not appear excessive. This exposure has partly funded...
