Agency cuts Indonesian bank ratings
Agency cuts Indonesian bank ratings
NEW YORK (AFP): A U.S. agency on Thursday lowered its legal rating on 13 Indonesian banks that it said were severely undercapitalized because of a fall in the value of the rupiah, the national currency.
"Some are so short of U.S. dollars they are defaulting on their foreign exchange obligations," said Fitch IBCA.
The "legal rating" used by the agency measures the likelihood of public support for an institution in case of bankruptcy. The lowest legal rating by Fitch is 5T.
The agency said private banks face a liquidity shortage from continued runs on deposits by retail depositors and the withdrawal of funds by foreign institutions.
While state banks remain in better shape, since rupiah deposits withdrawn from private banks have been placed in state institutions, they too face "asset quality problems."
The actions by Fitch are in response to a fall in the exchange rate of the rupiah, which on Thursday dropped below the level of 14,000 to the dollar from 2,450 in June 1997 and 5,300 rupiah in December 1997.
The agency said it was changing the legal rating of the four Indonesian state banks it rates to 4T from 2T.
"With a presidential election in the spring and mounting political unrest due to growing unemployment and inflation, there is little prospect for a restoration of confidence," Fitch said.
"Political unrest could arouse ethnic divisions and result in a higher level of social instability.
"While the government is not expected to change, its position is no longer impregnable. Given such a situation, support for state-owned banks can no longer be assured."
The rating action affects Bank Dagang Negara, Bank Ekspor- Impor Indonesia, Bank Negara Indonesia and Bank Rakyat Indonesia.
In addition the legal rating of nine Indonesian private banks has been lowered from 4T to 5T.
"The liquidation of sixteen insolvent private banks in November 1997... together with much tighter International Monetary Fund (bailout) conditions... suggests that support for private banks can no longer be relied upon," according to Fitch.
The rating change affects the following banks: Bank Central Asia, Bank Dagang Nasional Indonesia, Bank Danamon Indonesia, Bank Duta, Bank International Indonesia, Bank Niaga, Bank Umum Nasional, Lippo Bank and Pan Indonesia Bank.