BNI still seen as poorly capitalized

BNI still seen as poorly capitalized

NEW YORK (Dow Jones): Moody's affirmed Monday the ratings of
PT Bank Negara Indonesia at Caa2 for long-term deposits and
senior debt, Not Prime for short-term deposits and E for
financial strength.

The affirmation follows the injection of an initial tranche of
government bonds, commencing the bank's recapitalization.

Moody's commented that "although the injection of funds was a
positive sign, many challenges remain for the bank."

"After some delay, BNI has received an initial injection of 30
trillion rupiah (US$3.9 billion) in government bonds, under
Indonesia's bank recapitalization scheme. It is scheduled to
receive another Rp 31.8 trillion by end June, 2000. The bank has
also transferred Rp 34 trillion of deeply impaired loans to the
Indonesian Bank Restructuring Agency's asset management unit.

"These combined actions are due to bring the bank's capital
adequacy ratio to above the current regulatory minimum," the
ratings agency said.

However, Moody's believes that on a risk-adjusted basis, BNI
will remain poorly capitalized. Much of the bank's remaining loan
book continues to show signs of impairment or potential
impairment, the ratings agency added, with the resolution of such
problem loans is likely to be made more difficult by continuing
uncertainties over the implementation of Indonesia's new
bankruptcy law.

"Further capital raising is likely to be constrained for some
time by continuing poor investor sentiment.

"The bank is likely to face continuing earnings constraints. A
large portion of BNI's assets is now made up by government bonds.
It will be difficult for the bank to sell these bonds to expand
its more profitable loan business, given the low liquidity of
these instruments and the additional capital requirements for
loans, which threaten to reduce its capital adequacy ratio once
more.

"Nevertheless, the current modest economic recovery in
Indonesia could lead to a reduction in banks' problem loans as
well as increase the prospects for loan growth," Moody's added.