S&P acts on RI banks following IBRA action

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)