S&P acts on RI banks following IBRA action

JAKARTA (JP): Global rating agency Standard & Poor's revised Monday its rating of Bank Umum Nasional (BUN), Bank Dagang Nasional Indonesia (BDNI) and Bank Expor Impor Indonesia (Bank Exim) to "NM", or not meaningful.

The rating downgrade follows the government's move to place the banks under the control of the Indonesian Bank Restructuring Agency (IBRA).

The rating agency nevertheless praised the government's move to suspend Saturday the operation of seven insolvent commercial banks and take over the management of seven other problem-ridden banks, including the three downgraded banks.

"Standard & Poor's expects the pace of rationalization and consolidation of Indonesia's banking system to proceed at a dramatic pace over the next 12 months.

"Standard & Poor's views the Indonesian government's action as positive for the country's banking system."

The government action tacitly recognizes that the liquidity, capital and asset-quality positions of many Indonesian banks are dire, the agency said.

The dampened stock market and weak position of many corporate groups reduce the possibility that fresh equity can be injected from these sources to recapitalize Indonesia's banks, it said.

Given the urgent need for such recapitalization in the short term, this leaves only the Indonesian government and, to a much lesser extent, foreign investors as possible sources of new capital.

"The size of several of the banks coming under IBRA's supervision indicates the government's action is a significant step toward the long-awaited consolidation of Indonesia's banking industry."

IBRA, a government body established in January 1998 to rehabilitate banks, suspended Saturday the operation of Bank Kredit Asia, Centris International Bank, Deka Bank, Bank Subentra, Bank Pelita, Hokindo Bank and publicly listed Bank Surya.

IBRA had also taken over the management of Bank Danamon, BDNI, BUN, Bank Tiara Asia, Bank PDFCI, Modern Bank -- all listed banks -- and state-owned Bank Exim.

"Standard & Poor's considers the placement of a bank under IBRA's regulatory supervision as a result of the bank's financial condition as tantamount to regulatory intervention."

The agency said a bank rating would be revised to 'NM' upon seizure of the bank by a regulator due to its financial condition. Such regulatory actions generally imply substantial uncertainty about the issuer's ability to continue meeting financial obligations.

The government, however, has said that its guarantee on foreign-currency and rupiah-denominated claims by depositors and creditors of all locally incorporated banks remained in place.

In the case of foreign-currency claims, however, payments under the guarantee may be made in rupiah. (rid)