Indonesia needs banking plan

Indonesia needs banking plan

HONG KONG (Reuters): Indonesia is unlikely to emerge from its
political and economic crisis without strong government
leadership and proper implementation of a banking
recapitalization plan, Duff & Phelps Credit Rating Co said.

In its November report on recent developments in the
Indonesian banking system received on Monday, the agency said a
strong regulatory system must be in place if foreign investors
were to regain confidence in the country.

"Prevailing high interest rates coupled with the drastic
devaluation of the rupiah has made the servicing of debt almost
impossible for companies with foreign currency exposure and
dampened the will of some companies to even service their local
currency debt," it said.

"Most banks have been running a negative spread. With nearly
half of total bank loans at least three months past due, the
government estimates that 100 trillion rupiah is needed to
recapitalize the banking system in order to avoid a system-wide
collapse," it said.

To put in place a strong regulatory system, the agency
suggested technology investment for a reliable financial
information and management system, an improved risk management
system. strict implementation of cautious and credit-based
lending practices.