IBCA downgrades rating for Bank Exim
JAKARTA (JP): International ratings agency Fitch IBCA has assigned an individual rating of "D" for Bank Ekspor Impor Indonesia (Exim) and changed its legal rating for the bank from "2" to "2T."
Fitch IBCA said Wednesday that the change of its legal rating for Bank Exim to "2T" indicated the potential for arising transfer risk, given the current political, economic and financial developments in Indonesia.
"All state banks have been supported historically but the possibility of the government imposing foreign exchange controls means that there is potential for the transfer of risk of economic origin, which might prevent support for foreign currency creditors," the agency said.
Fitch IBCA's assignment of the "T" suffix follows its downgrade of Indonesia's sovereign rating to noninvestment grade on Dec. 22.
Fitch IBCA's legal ratings deal with the question of whether an institution receives support from either owners or government authorities if it runs into difficulty.
The individual ratings permit, on the other hand, is an evaluation divorced entirely from any consideration of outside support.
Bank Exim is Indonesia's fifth largest and one of the better state-owned banks, with levels of growth and performance more akin to those of the faster growing private banks.
"However, the strong performance over the past three years has been due to drastically reduced provisions rather than revenue growth as margins have been squeezed," the ratings agency said.
As of last September, the bank's total capital weighted risks ratio was just over 9 percent, the regulatory minimum, having declined from 12 percent at the end of 1996.
Fitch IBCA said the severe depreciation of the rupiah and high interest rates since August had led to a serious deterioration in the operating environment of Indonesian banks.
"Unless interest rates come down and the rupiah stabilizes, we expect a significant number of companies to default over the coming months which will severely affect the asset quality of Indonesian banks." (rid)