RI banking sector future 'still gloomy'<\/p>\n
NEW YORK (Dow Jones): Moody's Investors Service says that even
\nif the proposed bank recapitalization plan for the Indonesian
\nbanking system is successfully implemented, the immediate ratings
\nimplications are limited, as the sector continues to face major
\nhurdles on the path to recovery.<\/p>\n
In a report published last week, Moody's says challenges for
\nthe Indonesia banking system include:<\/p>\n
* The high cost of recapitalization.<\/p>\n
* The potential for further political and social instability to
\ncurb economic recovery and to delay foreign investment in the
\nbanking sector.<\/p>\n
* The resource, political and social constraints upon further
\nlegal and regulatory reforms and their rigorous implementation.<\/p>\n
* Moody's also expects that the ability of Indonesian banks to
\nrepay foreign currency obligations will continue to be restricted
\nby the general shortage of foreign currency in Indonesia.<\/p>\n
The rating agency recognizes that after a slow initial
\nreaction to the unfolding banking crisis, significant efforts are
\nnow being made to address the collapse in Indonesia's banking
\nsystem.<\/p>\n
However, in Moody's opinion, the current bank recapitalization
\nprogram is not a cure-all. Furthermore, it raises the specter of
\nmoral hazard.<\/p>\n
If blanket recapitalization is offered to all Category "B"
\nbanks, but not to financially stronger Category "A" banks, the
\nplan risks creating the impression that in the future, poor
\nperformance will be tolerated and that banks will be bailed out
\nas necessary.<\/p>\n
The cost of the recapitalization program will be very high,
\nMoody's says, with the government's own estimate at close to Rp
\n300 trillion (US$40 billion), or just under one third of forecast
\n1999 Gross Domestic Product.<\/p>\n
Furthermore, Moody's highlights that several assumptions have
\nbeen made which, if incorrect, will potentially increase even
\nfurther the cost of maintaining banks at the 4 percent capital
\nadequacy ratio (CAR) desired by the Indonesian authorities:<\/p>\n
* That interest rates will fall in 1999.<\/p>\n
* That the rupiah will not devalue once more.<\/p>\n
* That the Indonesian economy is close to bottoming out.<\/p>\n
* That banks eligible for recapitalization, including
\ngovernment-controlled banks, will be able to raise 20 percent of
\nthe additional capital required to bring them to a 4 percent
\ncapital adequacy ratio.<\/p>\n
* That reforms to bankruptcy laws will be effective.<\/p>\n
* That effective bank supervision can be established.<\/p>\n
In addition, Moody's has certain further concerns:<\/p>\n
* That political agendas will cause further delays and lessen
\nthe effectiveness of reforms.<\/p>\n
* That given the inherent risks in Indonesia stemming from
\npossible further economic, political and social uncertainty,
\nadherence to a 4 percent or even an 8 percent capital adequacy
\nratio standard, will not automatically ensure fundamentally
\nstrong banks.<\/p>\n
* The true (as opposed to paper) capitalization of banks will
\ndepend on whether those assets which are truly non-performing
\nhave been accurately identified and transferred in their entirety
\nto the Indonesian Bank Restructuring Agency's Asset Management
\nUnit.<\/p>\n
The proposed recapitalization brings only a modest amount of
\ntrue fresh capital to the Indonesian banking system.<\/p>\n
Despite this, in Moody's opinion, to the extent that this
\nincreases confidence, which ultimately leads to renewed bank
\nlending, the measures are positive.<\/p>\n
Nevertheless, the agency stresses that the planned
\nrecapitalization is only one element in a complex series of
\nreforms that need to be undertaken to ensure a return to long-
\nterm health for Indonesia's banks.<\/p>\n
Ruling -- page 12<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/ri-banking-sector-future-still-gloomy-1447893297", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }