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.