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)