RI banks in better shape than Thai: S&P

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)