Fitch IBCA may cut RI's debt ratings
Fitch IBCA may cut RI's debt ratings
NEW YORK (Reuters): International rating agency Fitch IBCA
said Wednesday it may cut Indonesia's BBB-minus long-term foreign
currency rating and F3 short-term rating because of political and
policy uncertainty.
At the same time, Fitch IBCA said that the possibility of the
government imposing foreign exchange controls meant that there is
potential transfer risk of economic origin, which might prevent
support for foreign currency creditors.
Fitch IBCA's legal rating -- the rating designed to indicate
whether support would be likely for distressed institutions -- of
the 13 Indonesian commercial banks rated by Fitch IBCA will
henceforth have "T" added. The "T" indicates transfer risk, and
is normally added to banks domiciled in non-investment grade
countries to show the potential lack of the sovereign's ability
to provide foreign currency support.
The legal rating of Bank Dagang Nasional Indonesia (BDNI) has
also changed from 4 to 4T (see table) and the agency has placed
the individual rating of C, short-term rating of B and long-term
rating of BB-plus on RatingWatch with negative implications.
Because of the difficulties in Indonesia, we expect BDNI's
asset quality to decline and non-performing loan ratios to at
least double in 1998.
BDNI's risk weighted capital ratio will also decline on
account of balance sheet inflation resulting from the upward
revaluation of U.S. dollar loans.
The current environment makes it very difficult to raise
capital but we believe that the Gajah Tunggal Group which
controls the bank has sufficient resources, should the bank
require additional capital.
Concern about President Soeharto's health, albeit
unsubstantiated, has renewed fears about the manner and timing of
a regime change, should the president die or his capabilities be
impaired.
The agency comments that while these fears are not new, such
an event would undoubtedly divert policy-makers attention away
from the country's current troubles.
Likewise, the initial optimism which accompanied the
announcement of the IMF rescue package in October has been
dispelled by concerns about backsliding and an ill-defined policy
agenda.
Fitch IBCA acknowledges that structural adjustments take
longer to implement, but says international investors need more
transparent indicators against which to measure Indonesia's
program performance.
Growing concern about these factors has undermined investor
confidence, causing the currency to fall to new lows and adding
to pressures on the corporate and financial sectors.
Fitch IBCA says although Indonesia wasted little time in
approaching IMF when the Asia crisis broke, compared to some
other countries in the region it has little room for maneuver,
given its high level of external debt.
As the fourth largest debtor in the developing world,
Indonesia has the highest net external debt ratio of any country
in the BBB category.
Moreover, the fact that a significant component of this debt
is short-term, intensifies its susceptibility to shocks. The
agency assigned Indonesia a long-term foreign currency rating of
BBB-minus and a short-term rating of F3 in June 1997.
Table: Fitch IBCA's legal rating
Banks New Previous
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Bank Central Asia 4T 4
Danamon 4T 4
Bank Internasional Indonesia 4T 4
Lippo Bank 4T 4
Bank Niaga 4T 4
Bank Umum Nasional 4T 4
Panin Bank 4T 4
Bank Duta 4T 4
Bank Negara Indonesia 2T 2
Bank Ekspor-Impor 2T 2
Bank Rakyat Indonesia 2T 2
Bank Dagang Negara 2T 2