Ratings of three Indonesian banks downgraded

JAKARTA (JP): PT Pemeringkat Efek Indonesia (Pefindo), Indonesia's only rating agency, announced yesterday it had downgraded three Indonesian banks and their long-term bonds because of weak performance.

The agency downgraded publicly-listed Bank Papan Sejahtera and its Rp 250 billion (US$60.9 million) long-term bonds to BBB- (minus) from BBB, with a negative outlook.

The rating of the publicly-listed Bank Modern and its Rp 100 billion long-term bonds was lowered to BBB- from BBB, also with a negative outlook.

BPD DKI Jaya (Bank DKI) and its Rp 500 billion long-term bonds was downgraded to BBB from BBB+ (plus), with a negative outlook.

The rating agency said that the downgrading reflected the banks' weakening profitability and slightly decreasing asset quality.

Bank Papan Sejahtera mainly engaged in providing house mortgage financing.

The agency reported that as of September, the bank's profitability had deteriorated particularly due to decreasing operational efficiency and a weakening interest spread.

The new management's heavy investment in human resources, and in system and technology development was seen as not showing equal returns, the agency said.

Bank Papan's asset quality also continued to deteriorate and was deemed to be below average compared to its major competitors.

The agency said the bank's lending quality had not improved as expected.

Despite the above weaknesses, the bank still dominated the medium to upper-scale house mortgage market, it said.

Pefindo estimated if the currency crisis continued, the quality of the bank's major exposures would most likely deteriorate further in the future.

The agency reported that Bank Modern's exposure to Indonesia's real estate sector affected its overall lending portfolio.

The bank's asset quality had slightly deteriorated although it still appeared at a controllable level. Its loss reserves were inadequate to defend itself from increasing nonperforming loans and smaller current provisions.

As of September, the bank's deteriorating interest differential influenced its weakened profitability sector.

A large portion of the bank's short-term funding sources had been used to finance long-term lending resulting in a widening liquidity gap, the agency said.

The agency also reported that by the end of October, Bank DKI's asset mix, consisting of non-lending earning assets (51.63 percent) and lending assets (37.04 percent), was similar to other regional development banks.

But Bank DKI's lending quality had deteriorated significantly, mostly due to the currency crisis.

The absolute number of the bank's nonperforming loans had increased. As a result, the bank's current loss reserves over nonperforming loans was at the absolute minimum level required by the central bank.

Bank DKI had a slightly below-average business position. The rating was based on its relatively small asset size and concentrated lending portfolio.

The bank's niche market, a strategic alliance with local government and other regional development banks, was considered to be the mitigating factors.

Despite the bank's focus within Jakarta and its surrounding markets, exposure to outside the region remained limited.

The agency said the concentrated portfolio had also weakened Bank DKI's ability to strengthen its overall business position. (gis)