RI bank crisis world's worst: S&P
RI bank crisis world's worst: S&P
SINGAPORE (AFP): Indonesia is experiencing the world's worst
banking crisis since the 1970s and may need to spend US$87
billion to revive the sector, credit rating firm Standard and
Poor's warned on Thursday.
"Indonesia is suffering the world's worst banking crisis since
the 1970s as measured on a fiscal cost-to-gross domestic product
basis, and may take up to a decade to fully recover," it said in
a statement.
The agency's estimate of what it would cost to initially
recapitalize or pay out creditors of ailing banks constitutes 82
percent of gross domestic product (GDP).
The estimated cost of saving the banking sector, 24 percent
higher than the Indonesian government's projection of $70
billion, makes it "among the highest of financial crises
transpiring in the past two decades."
The recovery is expected to be protracted due to the banks'
level of non-performing loans, which are expected to reach 75 to
85 percent of total loans by the end of 1999, and the difficulty
of disposing of distressed assets, said Terry Chan, director of
financial institutions ratings at Standard and Poor's.
Indonesia's relatively low GDP of $107 billion contributed to
the high cost of the banking crisis, the agency said.
"A further contributor to the severity of Indonesia's crisis
is the pivotal economic role played by domestic banking given the
underdeveloped local equity and debt markets," it added.
The warning came amid market euphoria over the peaceful
conduct of Indonesia's general elections last Monday, the freest
in over four decades in the world's fourth most populous nation.
But the Indonesian rupiah remained stable after the warning,
trading in Singapore around Rp 7,730 to the U.S. dollar.
Indonesia's new government and its banking authorities would
have "not much room to maneuver" in policies to rebuild the whole
Indonesian banking system," Chan told a news conference in
Singapore.
"When it comes to the banking sector, the facts are pretty
obvious and quite stark. Regardless of who is in charge, this is
the task they have to address," he said.
The Standard and Poor's estimate of recapitalization costs
came two weeks after Jakarta's decision to issue bank
recapitalization bonds worth Rp 103.8 trillion.
"But one worry is that they have delayed the recapitalization
of the larger state-owned banks to probably second half of the
year," Chan said, citing the state-owned Bank Negara Indonesia
which was still undercapitalized.
Another concern was the difficulty the private sector banks
were experiencing in coming up with their 20 percent share in
recapitalizing their banks.
Foreign banks such as Standard Chartered and Australia and New
Zealand Banking Group which have taken stakes in Indonesian banks
could give these banks the needed push to restart operations, but
their fortunes would remain linked to the overall scenario, Chan
said.
"There's no use being the best bank if your operating
environment is in dire straits," he said.
Immediately implementing recapitalization would be the first
step in closing the negative spreads now faced by Indonesian
banks due to high interest rates on deposits.
"I do agree it's a tough balancing act for the banking
authorities. How can we push down interest rate spreads without
endangering general confidence?" he said.
"The best approach is not to be slow. You know what has to be
done, you've stated your policies, just bite the bullet," he
added.
Standard and Poor's reiterated that Jakarta's plans to return
the banks to a capital adequacy ratio of 4 percent was "far
inadequate" and even if banks met the minimum requirement of
eight percent stipulated under Bank for International Settlement
(BIS) rules, this would still not be enough.
Chan said, however, that the protracted recovery of
Indonesia's banks presents the opportunity to "build up a sound
banking system over the next decade" that can rebound far better
if cyclical downturns or a new crisis occur.