State banks -- their success and problems<\/p>\n
By Hendarsyah Tarmizi<\/p>\n
JAKARTA (JP): Indonesia's seven state-owned banks are
\nconsidered heroes at home, with their success propelling six of
\nthem to be among the top 20 taxpayers in the country. But their
\nnotorious bad debt problems make them unpopular overseas.<\/p>\n
Bank Negara Indonesia (BNI) took the fifth slot in the list of
\nthe 200 largest corporate taxpayers in 1994, which was revealed
\nlast week by Tax Director General Fuad Bawazier. Bank Ekspor
\nImpor Indonesia (BEII) was sixth.<\/p>\n
Bank Dagang Negara (BDN) took eighth place, Bank Rakyat
\nIndonesia (BRI) ninth and Bank Tabungan Negara (BTN) 15th, while
\nBank Bumi Daya (BBD) was ranked 20th.<\/p>\n
However, a continued increase in their bad debts makes the
\nbanks \"very small\" in the eyes of the international business
\nsociety.<\/p>\n
Moody's Investors Service, a U.S. rating company has assigned
\nvery poor grades to the state-owned banks. BNI and BTN received
\n\"D plus\", while BEII, BDN and BRI all got \"E\".<\/p>\n
The banks' bad debts have continued to increase despite the
\ngovernment's serious efforts to tackle the problem.<\/p>\n
According to the central bank's latest data, the outstanding
\nbad debts of the country's banks grew from Rp 9.97 trillion
\n(US$4.3 billion) as of last June to Rp 10.4 trillion in November,
\naccounting for 2.4 percent of their total outstanding loans.<\/p>\n
The bad debts of the state-owned banks alone, in the same
\nperiod, rose from Rp 7.31 trillion to Rp 7.86 trillion,
\naccounting for 3.04 percent of their total credits.<\/p>\n
For comparison, their bad debts stood at Rp 3 trillion in
\nDecember 1993.<\/p>\n
BNI's acting president, Willy Sambalao, said that he was not
\nsurprised with the low grade assigned by the rating agency to BNI
\nand other state-owned banks.<\/p>\n
He said that the \"E' grade was not only assigned to Indonesian
\nbanks. \"Tokai Bank of Japan also got the same rating,\" he told
\nnewsmen recently.<\/p>\n
BNI, which is now being prepared for public listing, is not
\nonly considered the most profitable state-owned bank but also has
\nthe soundest financial performance.<\/p>\n
Asked if the low rating would affect the public offering plan,
\nSambalao said the most important factor for investors is the
\nprofitability of the bank.<\/p>\n
Many of BNI's executives were not happy with the Moody's
\nrating, given the significant improvement in the bank's
\nperformance in the last three years.<\/p>\n
BNI, the largest of the seven state-owned banks, recorded a 22
\npercent rise in its total assets to Rp 37.5 trillion in last
\nDecember from Rp 30.7 trillion at the end of 1994. The bank's
\nprofits rose by 31.3 percent to Rp 405.8 billion last year from
\nRp 309.2 billion in 1994<\/p>\n
The bank's capital adequacy ratio (CAR) was recorded at 9.08
\npercent last December, surpassing the minimum CAR requirement of
\n8 percent set by Bank Indonesia, the central bank. The ratio of
\nBNI's rate of return on assets (ROA) was 1.46 percent last year.<\/p>\n
BNI has 479 domestic and six overseas branches -- in
\nSingapore, London, Tokyo, Hong Kong, New York and on Grand Cayman
\nIsland.<\/p>\n
Bapindo's president, Arbali Sukanal, gave a positive response
\nto the low grade assigned by Moody's to his bank's financial
\nstrength.<\/p>\n
\"The rating agency reminded us of the difficult challenges we
\nwill have to face in the future, given the tighter competition
\nfrom private banks,\" he said.<\/p>\n
Credit risks<\/p>\n
With regard to credit risks, international rating agencies
\nMoody's and Standard & Poors gave more favorable grades to the
\nstate-owned banks despite their mounting bad debts.<\/p>\n
Moody's, for example, assigned Baa3 for Bapindo's bonds and
\nBa1 for its long-term deposit obligations. The other six state-
\nowned banks also received a similar rating for both their bonds
\nand long-term deposits.<\/p>\n
The banks' debt and deposit ratings were based mainly on the
\nstrong support given to the banks by its 100-percent shareholder,
\nthe Ministry of Finance, according to the rating firm.<\/p>\n
Standard and Poor's also gave the same level of risk
\nevaluation to the country's state-owned banks. The rating agency
\nassigned an \"adequate\" risk credit grade to BBD, BDN, BEII, BNI
\nand BRI.<\/p>\n
The two rating agencies said that problem loans will impede
\nthe state-owned banks' future operations.<\/p>\n
The state-owned banks have to continue to reduce their
\noverheads to enable them to compete in the more competitive world
\nmarket, despite receiving strong support from the government, the
\ntwo rating agencies noted.<\/p>\n
Local analyst Rizal Ramli, an executive of the Economic,
\nIndustrial and Trade (Econit) advisory group, also warned that
\nthe market share of the state-owned banks will continue to
\ndecline because they are unable to be as competitive as private
\nbanks.<\/p>\n
The state-owned banks' share in the country's total banking
\nassets, funds and credits declined from 80 percent in the early
\n1980s to below 40 percent last year.<\/p>",
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