RI banks must shape up for competition: Report

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)