Problem loans may reach 60 percent of outstanding loans

JAKARTA (JP): Problem loans in Indonesia's banking industry may reach 60 percent of outstanding loans by the end of 1998, a local rating agency has said.

"If the crisis persists and there is no clear solution to the private corporate debt problem, the industry's level of problem loans as a percentage of total loans may reach as high as 60 percent by the end of 1998," said Pefindo in a press statement late Friday.

It explained that the banking sector has been facing an increasingly difficult operating environment because corporate borrowers have been confronted with a liquidity squeeze, and, at the same time, consumers have been facing a contraction of disposable income.

The banks' significant foreign exchange exposure, amid the plunge in the rupiah, has a significant impact, especially in deteriorating asset quality, Pefindo added.

"All of these are clear warning signals that there is an urgent need to significantly improve the capitalization of all banks," said the country's only rating agency.

Indonesia's monetary crisis, which started in July, has undermined the banking sector. As part of an overall banking reform program sponsored by the IMF, the government shut down 16 banks in November and another seven banks early this month. The management of seven other banks have also been taken over by the newly established Indonesian Bank Restructuring Agency (IBRA).

In addition, the agency has also placed 40 banks under its supervision since its establishment in January. Eight of these have been released from its supervision after their shareholders agreed to inject fresh funds.

To prevent bank runs, the government has guaranteed all depositors' money.

"Pefindo views positively the government guarantee scheme," it said, but added that the rating agency remained concerned about its mechanics, timeliness, and time-frame.

Pefindo also downgraded the ratings of all 10 rated banks on the continuing deterioration in asset quality and substantial forex exposure. Except for publicly listed Bank Tiara Asia and Bank Modern, all were assigned a "negative outlook".

The ratings of the state Bank Tabungan Negara and its local bonds has been lowered to BBB from A.

Listed Bank Internasional Indonesia (BII) and its long-term debt instrument was downgraded to BB+ from BBB+.

"Although the bank's liquidity position seems to be relatively less affected by the crisis, BII's weakening asset quality, together with its substantial forex exposures, have put additional pressure on its capitalization," Pefindo said.

Other listed banks which were downgraded are: Bank NISP, Bank Mashill Utama and Bank Papan Sejahtera. (rei)