RI banks rated bad by U.S. company

JAKARTA (JP): Standard and Poor has assessed the Indonesian banking system as existing in "a high risk environment" and "undergoing a period of financial stress."

The New York based credit rater also said that Indonesia's banking industry has a "relatively uncertain and unstable medium- term outlook."

Standard and Poor argued that its risk assessment is based on "a flood of new entrants, aggressive lending growth and inadequate lending procedures."

The report comes as little surprise given the highly publicized US$430 million credit scandal at state-owned bank Bapindo, in which former cabinet ministers, executives of a state commercial bank and a politically connected businessman have been implicated.

Standard and Poor, in fact, focused its criticism on the state-owned banks, which account for 54 percent of total bank lending. These banks, the biggest in Indonesia, were rated "in the worst situation."

Minister of Finance Mar'ie Muhammad said in February that non- performing loans at the country's seven state banks swelled by 360 percent within three years to over Rp 14.97 trillion ($7.12 billion) as of last October.

The American credit rating company gave better marks to Indonesia's private commercial banks, saying they "have more positive attributes."

The private banks are also "better placed and have greater financial flexibility", the statement said.

Standard and Poor, however, warned that many private banks have close affiliations with corporate groups which "raises concerns regarding lending and loan concentrations to related entities."

Bank Summa, which used to belong to Summa Group, went bankrupt in December 1992 after financing the group's property expansion. Summa is now being bailed out by a subsidiary of a firm belonging to President Soeharto's eldest daughter. (04)