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.