Banking sector still risky: S&P
Banking sector still risky: S&P
Leony Aurora , The Jakarta Post, Jakarta
Despite improvements in recent years, the country's banking
system remains risky by international standards, says global
rating agency Standard and Poor's.
In a statement released on Monday, S&P said that the industry
faced the risks of sizable non-performing assets, sluggish loan
growth to the real sector, regulatory problems and residual
economic uncertainty resulting from terrorist bombings over the
last couple of years.
"The level of capitalization in the overall banking system has
improved with gradually rising investor confidence following
several completed privatization programs and, partially, improved
political stability," said S&P credit analyst Adrian Chee.
However, the country's banks had yet to resume their
intermediation role and, instead, relied heavily on interest
income from government securities.
Eight years after Indonesia's monetary crisis sent the banking
sector tumbling into a financial abyss in 1997, the loan-to-
deposit ratio remains stubbornly low at about 50 percent, with
banks in general finding it more lucrative and less risky to
finance consumer spending rather than the expansion of the real
sector.
Most banks also prefer to invest their funds in zero-risk Bank
Indonesia one-month and three-month promissory notes rather the
lending to businesses.
According to figures from Bank Indonesia, the total value of
the loans extended by the country's banks reached Rp 526.5
trillion (US$57.23 billion) last year, up from Rp 440 trillion in
2003.
Fitch Ratings, another international ratings agency, raised
the ratings of 10 major lenders in Indonesia a week ago on
positive changes in the banking sector and recent upgrades in the
country's sovereign rating.
The long-term foreign currency ratings of Bank Mandiri, Bank
Central Asia (BCA), Bank Rakyat Indonesia (BRI), Bank Negara
Indonesia (BNI), Bank Danamon, Bank NISP, Bank Buana and Bank
International Indonesia (BII) were upgraded one notch from B+ to
BB-, which is three levels away from the lowest investment grade,
with a positive outlook.
Two months ago, S&P raised Indonesia's long-term foreign
currency rating one step to a B+ from a B, while the local
currency rating was upgraded two levels to BB from B+.
Along with the improvement in the country's ratings, S&P
upgraded the long-term foreign currency credit ratings on Bank
Mandiri, Bank Danamon and BNI to B-plus from B.