Indonesian bank sector reform lagging: S&P's
Indonesian bank sector reform lagging: S&P's
JAKARTA (JP): Ratings agency Standard and Poor's (S&P's) of
the United States expressed concern yesterday over the
restructuring of the banking sector in Indonesia, saying it was
not proceeding quickly enough.
The agency said Indonesia lagged behind its neighbors in
restructuring its banking sector.
"A key factor in the return of confidence and stability to the
banking sector will be the emergence of a number of strong, well
capitalized financial institutions that have the ability to cope
with adverse economic circumstances," the agency said in a
statement sent by its Melbourne office.
The agency said recent action by the Indonesian Banking
Restructuring Agency (IBRA) to release weak banks from its
supervision may delay the process and further erode confidence in
the Indonesian banking system.
IBRA was set up by the government on Jan. 27 to closely
supervise banks with liquidity problems in an effort to nurse
them back to health.
Forty banks were initially placed under IBRA tutelage, but
Minister of Finance Fuad Bawazier recently said the agency had
discharged eight banks, including three state banks, one
provincial development bank and four private banks.
The rationalization of weaker banks is necessary if the
Indonesian banking sector is to regain "financial flexibility
equal to that of other international banking systems", the New
York-based credit assessor said.
"S&P's considers that this could be achieved at a more rapid
pace if the Indonesian regulators were not as committed to
protecting all financial institutions, regardless of their
economic viability," it said.
The agency said all Indonesian banks were dramatically
undercapitalized, with massive asset-quality problems that were
not expected to stabilize in the short term.
"With more than 200 banks currently operating in Indonesia,
the system is considered to be overbanked," it said, projecting
nonperforming loans at the country's banks to peak at 55 percent
by the end of 1998.
The agency compared the situation in Indonesia with that in
Thailand and Malaysia where, it said, regulators had shown a
greater sense of urgency in seeking to rationalize the sector.
In Thailand, a number of banks have been nationalized,
recapitalized and earmarked for privatization once problem assets
have been removed. In Malaysia, the government has announced its
plans for the rationalization of its finance company sector.
"The response in Indonesia, by comparison, has been
lackluster," the agency said, noting that no significant bank
mergers had been finalized.
The Indonesian banking sector is in dire need of
rationalization and recapitalization if IBRA's objectives of
nursing the banking sector back to health are to be achieved,
said the agency.
Without the intervention of Bank Indonesia and IBRA, a
considerable number of banks would already have failed, it said.
"S&P's considers that allowing these vulnerable banks to
return to normal business may delay the ultimate recovery of the
Indonesian banking system," the ratings agency warned. (jsk)