ING Baring predicts lower profits for top banks<\/p>\n
JAKARTA (JP): Bank Indonesia's tight monetary measure to shore
\nup the rupiah is expected to cut the earnings growth of
\nIndonesia's top publicly listed banks.<\/p>\n
ING Baring Securities said in its latest weekly report that
\nthe banking system was among the worst hit by the credit crunch
\nmeasure, which had caused a sharp increase in interest rates.<\/p>\n
The report said among the banks severely hit by the crisis
\nwere Bank Bali, Bank Danamon, Bank Dagang Nasional Indonesia
\n(BDNI), Bank Internasional Indonesia (BII), Bank Lippo, Bank
\nNegara Indonesia (BNI), Bank Panin and Bank Tiara.<\/p>\n
The securities company said it had revised down the net profit
\nprojection of those banks by between 20 percent and 60 percent
\nfor 1997 and 1998.<\/p>\n
ING Baring said its 1997 profit forecast for Bank Bali was,
\nfor example, lowered by 24 percent to Rp 120.7 billion from the
\ninitial Rp 150.4 billion estimate. It also cut down its 1997 net
\nprofit projection for Bank Danamon by 63 percent to Rp 169.3
\nbillion from the initial Rp 277 billion estimate. (see table)<\/p>\n
The report said the growth estimate projection was made in
\nanticipation of lower loans growth and deposit rate forecast to
\nan average of 10 percent this year and next year.<\/p>\n
\"We have assumed a 20-30 basis point drop in the net interest
\nmargin because the banks have to compete more actively for
\ndeposits,\" the report said.<\/p>\n
The report said the provisioning had been raised by 50 basis
\npoints across the board to take into account the probability of
\nhigher nonperforming loans because companies were squeezed by
\ntight liquidity and high interest rates and the lower value of
\nthe rupiah.<\/p>\n
ING Baring said that banking stocks were among the markets
\nworst performers due to the financial crisis.<\/p>\n
\"There was a feeling, albeit denied by most parties concerned,
\nthat many have suffered large losses on their foreign exchange
\ntrading activities,\" ING Baring said.<\/p>\n
The securities companies said a higher interest regime,
\nparticularly if short-term rates stay as high as 30 percent for
\nany period of time, would lead to a greater incidence of defaults
\nfrom customers.<\/p>\n
\"This is particularly true for those with heavy exposure to
\nthe property sector which is perceived as being particularly
\nvulnerable,\" the report said.<\/p>\n
The report said a provisioning level of 2 percent of gross
\nloans would not be enough compared to the increasing number of
\nproblem loans.<\/p>\n
The report said that previous loan growth forecasts of 20
\npercent had been predicted in expectation of continued economic
\ngrowth at 7 percent.<\/p>\n
However, it said, a sharp increase in interest rates could be
\nexpected to dampen sharply the demand for funds such as the loans
\ngrowth in 1998 and 1999.<\/p>\n
The report also said that high interbank rates had led to an
\nincreased cost of funds.<\/p>\n
The report said that although the banks had sought to
\ncompensate by raising their lending rates across the board, it
\nwas by no means clear that they would be able to make these rates
\nstick.<\/p>\n
But ING Baring said the currency turmoil would only last for
\nthree months at the most until the rupiah stabilized.<\/p>\n
\"Indeed there are signs that some stability has already been
\nreached with the exchange rate settling in the Rp 2,900-2,950
\nrange with deposits starting to fall,\" the report said.<\/p>\n
The rupiah and other Southeast Asian currencies have come
\nunder pressure following the devaluation of the Thai baht in
\nJuly. Rupiah has lost over 20 percent against the U.S. dollar
\nsince then. (aly)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/ing-baring-predicts-lower-profits-for-top-banks-1447893297",
"image": ""
},
"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
}