BNI's rating confirmed despite negative equity

JAKARTA (JP): U.S. rating agency Standard & Poor's affirmed Thursday its ratings on Bank Negara Indonesia and its US$145 million notes due 2007 despite the bank's negative equity.

The outlook on the bank also remains negative, the rating agency said in a statement.

S&P maintained BNI's local currency counterpart ratings at triple C plus and foreign currency counterpart ratings at triple C minus. Ratings on BNI's $145 million notes due 2007 stay at triple C minus.

"The affirmation reflects Standard & Poor's expectation that the Indonesian government will fulfill its stated intention to recapitalize BNI," it said.

BNI suffered an equity deficit of Rp 43.3 trillion (US$5.4 billion) at the end of 1998, equivalent to 79 percent of its total assets.

Standard & Poor said such an equity deficit for BNI was not surprising given the bank's weak capital adequacy ratio (CAR) of 2.79 percent on June 30, 1998.

The rating agency described BNI's stature as symptomatic of the Indonesian banking sector's dire condition.

The rating agency estimated that gross non-performing assets -- non-performing loans plus foreclosed assets -- against total loans for Indonesia's banking system would rise beyond 65 percent in 1999.

It predicted that BNI's non-performing assets ratio had reached about 65 percent to 75 percent.

It noted that the fate of BNI was totally reliant on major recapitalization by the government, which currently owns 75 percent of the bank.

The government has planned to recapitalize all seven state banks, 15 regional development banks and eight private banks to bring their CAR ratio -- of equity capital and risk-weighted assets -- to 4 percent.

S&P's said that a 4 percent target of the ratio was too low for BNI given the inherently perilous operating environment.

"Such a low target capitalization, even if achieved, will be a constraining factor on the bank," it said.

Like most other Indonesian banks, BNI suffers from not only the cost of carrying a high level of non-performing loans, but also negative interest margins as a result of borrower inability to service high loan rates.

The ratings agency suspected that the government would not recapitalize BNI until the second half of this year as it was apparently seeking to first recapitalize eight private banks.

"A delay in recapitalization, however, will add to the eventual cost of rescuing BNI," it said.

S&P's predicted that a six-month delay in BNI's recapitalization would increase its equity deficit by 10 percent to Rp 47.4 trillion by the end of June. (rid)