S&P affirms rating, but revises outlook

S&P affirms rating, but revises outlook

SYDNEY (Reuter): Standard & Poor's said yesterday it affirmed its ratings on Bank Negara Indonesia, Bank Danamon and Bank Umum Nasional, but revised the outlook on these ratings to negative from stable.

Bank Negara has a BBB counterparty rating for long-term debt and A3 rating for short-term debt.

Bank Danamon and Bank Umum are rated BB for long-term debt.

S&P said Bank Niaga remains on creditwatch but with negative implications, where it was placed on July 30.

It said the outlook revision reflected its expectation that both the asset quality and profitability of Indonesia's banks would weaken due to the increasingly challenging financial environment.

Some banks, through positive U.S. dollar or marginally open Indonesian rupiah positions, may have escaped losses from the rupiah's recent sharp depreciation, but this may not hold for corporate and commercial customers.

"This may lead to a deterioration in asset quality over the short to medium term," the ratings agency said.

"In addition, the weakened performance of the Indonesian stockmarket and increasing evidence of oversupply in some sectors of the real estate market gives rise to possible concerns regarding collateral values against loans extended," it said.

S&P said the government's tight liquidity policy should help maintain interest rates at current high levels and lead to further margin pressure in an already competitive market.

It said larger and more diverse institutions and those which had shown more prudent growth strategies would have more flexibility to weather the conditions.