RI banks entering challenging phase

RI banks entering challenging phase

The Jakarta Post, Jakarta

Indonesian banks are entering a new phase of transformation,
which will pose greater challenges for industry participants,
according to international rating agency Standard & Poor's (S&P)

In the medium term, the Indonesian banking sector is poised to
enter a phase of increasing risk with added pressure on its
earning margins, S&P said in its commentary titled "Changing
Dynamics Pose Greater Challenges for Indonesian Banking Industry"
published on Thursday.

Nevertheless, it said, the industry's success in managing
these emerging risks will depend on the extent of restructuring
undertaken by the banks themselves, together with the banking
reforms that the central bank, Bank Indonesia, has introduced so
far.

However, two positive structural developments are expected to
mitigate the challenges brought about by the changing industry
dynamics: growing foreign investment in domestic commercial
banks, bringing in best practices; and implementation of
measures/initiatives by authorities, such as risk management
programs.

"The challenges to the industry fall broadly into two
types--pressure on margins and asset quality risks," said S&P
credit analyst Adrian Chee of the Financial Services Ratings
Group.

Pressure on margins is expected to come with the decline in
benchmark interest rates and rising competition. Asset quality
issues are expected as banks increase lending, with lower
reliance on government-related securities, the rating firm said.