Moody's ups ratings on eight Indonesian banks

JAKARTA (JP): Moody's has upgraded the deposit ratings of eight Indonesian banks to Caa1 following an improvement in their financial performances.

The banks involved are: Bank Mandiri, Bank Negara Indonesia, Bank Rakyat Indonesia, Bank Tabungan Negara, Bank Danamon, Bank Internasional Indonesia, Bank Pan Indonesia and Bank Bali.

The U.S.-based rating agency said in a statement on Friday that the long-term debt ratings of Bank Mandiri, Bank Negara Indonesia and Bank Danamon had been upgraded to B3, while the long-term debt rating of Bank Tabungan Negara had been upgraded to Caa1.

Additionally, Moody's upgraded the financial strength rating of Bank Danamon to E+ from E, and placed under review, for possible upgrade, the financial strength ratings of Bank Rakyat Indonesia and Bank Pan Indonesia.

The outlook for the ratings of Bank Tabungan Negara and Bank Bali were changed to positive.

Moody's said the upgrades on the debt and deposit ratings are the result of improvements in Indonesia's external position, the predictability of the banks' access to foreign currency liquidity in a timely manner and in the fundamental financial positions of the banks themselves.

However, Moody's cautioned that the potential for further political and social instability continued to depress confidence levels, with ramifications on foreign currency liquidity, and that this would continue to constrain bank ratings.

Moody's noted that the restructuring of the banking sector has become a key element in the Indonesian government's measures to restore economic stability.

The government has guaranteed all bank obligations and, in cooperation with the IMF and World Bank, engaged in a bank restructuring and recapitalization program equivalent to some 60 percent of GDP.

Efforts to tighten bank regulations and supervision have also met with some success.

However, the banks' operating environment remains poor, the rating agency said, adding that reform of the legal system has made little progress.

"Consequently the pace of corporate debt restructuring has been very slow, lowering potential recovery rates," it said.

The upgrade of the financial strength rating of Bank Danamon to E+ from E, reflects the bank's improved financial condition as a consequence of its privileged recapitalization by the government.

This has provided Bank Danamon with increased financial flexibility in relation to other banks. The upgrade also reflects Bank Danamon's role as one of the country's largest banks, with a widespread network that will support efforts to increase its retail activities.

The bank's new senior management, who has considerable experience with foreign banks, is focusing on strengthening the bank's credit risk management function and core profitability.

The review for possible upgrade of the financial strength rating of Bank Rakyat Indonesia will focus on the improvement in the bank's financial condition resulting from its recapitalization by the government and on moves to refocus on its core business of lending to individuals and small businesses that has proved highly profitable in the past.

The review for possible upgrade of the financial strength rating of Bank Pan Indonesia (Panin Bank) will consider the evolution of the bank's relationship with Australia's ANZ Bank, which controls a 29 percent stake, and Panin's efforts to increase its retail banking business.

The positive outlook for Bank Tabungan Negara reflects the bank's ongoing restructuring and recapitalization by the government.

The positive outlook for Bank Bali reflects the bank's recent recapitalization by the government. (hen)