RI banks must shape up for competition: Report
JAKARTA (JP): Indonesian banks must become stronger, faster and fewer to remain competitive against foreign institutions, American rating agency Standard & Poor's (S&P) said yesterday.
The agency's first assessment of Indonesian banks said Indonesian banks must improve on all fronts to remain competitive because foreign banks are becoming more active in Indonesia and domestic customers are becoming more sophisticated.
"Indonesian banks, therefore, need to strengthen their finances, product systems and human resources and be faster in terms of responding to changing customer needs and market developments," the S&P report said.
S&P assigned public information ratings to 13 Indonesian banks ranging from "BBBpi to "BBpi". The pi following the ratings indicates that S&P used analytical procedures which parallel its traditional credit ratings except that they are based on banks' public disclosures and other sources.
The banks were not interviewed closely for the analysis.
"BBB" rated banks have an adequate capacity to pay interest and repay principal. Protection levels are more likely to be weakened by adverse changes in circumstances and economic conditions than those with higher ratings.
"BB" ratings are assigned to those with speculative characteristics in respect of their capacity to pay interest and repay principal. They face continued uncertainty or exposure to adverse business, financial or economic conditions.
Of the 13 banks, four were rated BBBpi: Bank Dagang Negara, Bank Ekspor Impor Indonesia, Bank Rakyat Indonesia and Bank Tabungan Negara.
The nine other banks were rated BBpi: Bank Bali, Bank Bumi Daya, Bank Central Asia, Bank Dagang Nasional Indonesia, Bank Duta, Bank International Indonesia, Lippo Bank, Bank Niaga and Pan Indonesia Bank.
The rating agency, which also assessed banks in Singapore and the Philippines, said Indonesia had too many commercial banks -- it has 240 -- and not enough branches.
Singapore
The rating agency assessed Singapore's banking system as the least risky, the strongest capitalised and one of the most profitable in Asia.
Of the six Singapore banks, three had "AApi" ratings and three "Api" ratings. Indonesia and the Philippines each had four banks rated "BBBpi." In the "BBpi" category, Indonesia had nine banks and the Philippines had 10.
S & P said some 250 new ratings would be assigned over the next few months, predominantly to banks in emerging markets.
The rating agency said Singapore had a very strong banking system and would "continue to be the least risky, the strongest capitalised, and one of the most profitable within Asia."
"Despite the mature and increasingly competitive nature of the Singapore market, regional expansion and a strong, although moderating domestic economy should result in satisfactory growth for the Singapore banks into the medium term."
"AA" rated entities have a very strong capacity to pay interest and repay principal in a timely manner. A-rated entities may be more susceptible to the adverse effects of changing circumstances and economic conditions.
The Development Bank of Singapore Ltd., the Overseas-Chinese Banking Corp. Ltd. and United Overseas Bank Ltd. won the "AApi" ratings. Keppel Bank of Singapore Ltd., Overseas Union Bank Ltd., and Tat Lee Bank were rated "Api."
Philippine banks are sound within the context of their domestic environment, S and P said, but cited their aggressive lending policies as a matte of concern.
"Aggressive lending growth by Philippine banks, including a disproportionate increase in real estate loans, raises concerns that the commercial banking sector, and individual banks, will experience asset quality difficulties, especially if the economy declines," S & P said.
It said Philippine banks that were most vulnerable to a deterioration in asset quality were ones that had "relaxed credit standards in their traditional markets in order to compete for vigorously for increased market share." (vin)