S & P's bad rating to further worsen local bank's image
S & P's bad rating to further worsen local bank's image
JAKARTA (JP): Standard & Poor's bad rating of Indonesian banks
will further damage the image of the country's banking system on
the world money market.
Muchtar Mandala, the president of Bank Bukopin, said here
yesterday that the direct impact will be the decline in the
confidence of overseas banks.
"The decline in the confidence will then result in the rise in
transaction costs in dealing with foreign banks," he told The
Jakarta Post when commenting on Standard and Poor's negative
assessment of the country's banks.
In its recently published ASEAN Banking Profile, the New York-
based rating agency said the Indonesian banking system is now
undergoing a period of financial stress as a result of the
banking reform introduced in the late 1980s.
The rating agency said that consequently, the medium-term
outlook for the Indonesian banking sector overall is considered
to be relatively uncertain and unstable, especially for the
country's six state banks -- Bank Bumi Daya, Bank Pembangunan
Indonesia (Bapindo), Bank BNI, Bank Dagang Negara, Bank Rakyat
Indonesia and Bank Ekspor Impor Indonesia.
The state banks, which account for more than 50 percent of
total bank lending, are in the worst situation due to their high
non-performing loans, high loan concentration and low
capitalization.
According to S & P, those factors, together with doubts about
the integrity of reported financial information, gives rise to a
high risk environment which needs to be treated with caution.
Selective
Muchtar, also a deputy chairman of the Indonesian Chamber of
Commerce and Industry (Kadin) for banking and insurance affairs,
said that the negative judgment of such a respected, independent
agency will also make overseas banks more selective in dealing
with local banks.
"For local banks, which are not internationally recognized, it
will be more difficult to accrue credits or make other deals with
foreign banks," he said. "In this situation, foreign banks will
ask for higher commissions or interest rates for their services,"
he said.
Bambang Subiyanto, the director general for financial
institutions at the Ministry of Finance, said that the impact of
the rating on Indonesia's banks will be small.
"It is not a big deal any way ... as every one has the right
to make a judgment," he said, referring to the S & P's report.
Bambang said "the most important thing is that the government
is committed to further improving the country's banking system,"
he added.
Winarto Soemarto, the president of Bank BNI, said that state
banks will not likely face difficulties in dealing with overseas
banks despite S & P's unfavorable judgment.
"Overseas bankers' confidence in our state banks is very
encouraging and I am optimistic that their judgment will remain
positive," he said.(hen)