RI banks in better shape than Thai: S&P

JAKARTA (JP): Indonesian banks are in better shape than their Thai peers despite recent currency woes and high prevailing interest rates, a Standard & Poor's analyst said here yesterday.

But S&P Asia-Pacific associate director for Financial Institutions Ratings Terence E.H. Chan warned that Indonesian banks were still at risk from a domino effect if the current tight monetary policy and high interest rates forced corporate customers to default.

Speaking to journalists after a seminar here, Chan said Indonesian banks were in better shape because their external debts were better restructured.

"Basically, we don't see Indonesian banking as another Thailand because the banks and the customers are not leveraged in terms of short-term external debts," Chan told journalists.

"That's important because it affects liquidity. If foreign investors stop lending when your foreign debts mature, then you have liquidity crises," he added.

In Indonesia, he said, the level of leveraging was less than that in Thailand, in terms of short-term external debts. There were external debts, but they were better structured as they had longer maturity.

Another strength of Indonesian banks, Chan said, was their traditional long position on the U.S. dollar because of the government's stated plan on the rupiah's depreciation against the dollar.

"When the dollar appreciates, you gain," he said, adding that in his discussion with executives of many local banks, he learned that most major players had not lost money in the currency turmoil.

The banks were also protected by traditional lending at one to three month repricing rather than fixed interest rates. Therefore, they could quickly adjust up lending rates when deposit rates soared to over 30 percent.

"So, if I have to pay deposits 30 percent, I would charge the borrowers 35 percent. This way, they could cover their interest rate risks," he said.

But Chan warned the danger to Indonesian banks now came from a secondhand effect as borrowers were under pressure from high interest rates and the bank's asset quality deteriorated.

"The banks are all right, but what about the customers and borrowers? If borrowers are unhedged or cannot pay high interest rates, then they can go default, asset quality drops and it will affect the banks profitability," Chan said.

Chan said local bankers had told him they could handle three to four months of high interest rates. Banks were still able to balance high borrowing rates with high lending rates.

"But if this drags on, their customers will face problems servicing the loans and that will have an effect on banks," he warned.

S&P last month affirmed its ratings on Bank Negara Indonesia (BNI), Bank Danamon, Bank Umum Nasional and Bank Niaga but revised the outlook on these ratings to negative from stable.

But the agency put Bank Niaga on its credit watch following the acquisition of the bank from the Tahija family to Hashim Djojohadikusumo.

Head of S&P's Melbourne office, Graeme Lee, said the revision on the outlook was predominantly associated with the currency problem the region was experiencing.

He said the region could go into a period of lower economic growth, which would have implications for companies the banks had lent money to. If they went bankrupt, it would also burn the banks.

"If there is slower economic growth and softening of the property sector, it will create high problem loans which could weaken the banking sector," Lee said. (rid)