S&P puts some Indonesian banks under review

S&P puts some Indonesian banks under review

HONG KONG (AFP): U.S. ratings agency Standard and Poor's yesterday put four Indonesian banks under review for a possible downgrade of their credit rating, citing concerns the country's banking system was deteriorating.

The four banks put under credit watch with "negative implications" were PT Bank Negara Indonesia, PT Bank Danamon Indonesia, PT Bank Internasional Indonesia and PT Bank Umum Nasional.

A fifth bank, PT Bank Niaga, remained on creditwatch with negative implications.

"In addition, Standard and Poor's intends to review for possible downgrade all existing public information ratings on major Indonesian banks," the New York-based agency said in a news release.

Bank Negara Indonesia is one the country's seven state-owned banks.

Bank Danamon is owned partly by business tycoon Soedono Salim, and Bank Internasional Indonesia is a subsidiary of the Sinar Mas group.

Bank Umum Nasional counts Muhammad "Bob" Hasan as one of its main shareholders.

All four banks are listed in the Indonesian stock exchange.

The rating agency also said that it was currently undertaking a major review of the Indonesian banking sector.

The rapid fall of the rupiah against the dollar in recent days, following nearly four months of continued exchange rate depreciation, "has exacerbated the asset quality and profitability difficulties that the Indonesian banking system is facing," Standard and Poor's said.

The tight liquidity in the banking sector and the resulting high interest rates, following government moves to prop up the rupiah, had also affected the ability of borrowers to service rupiah-denominated debt.

Standard and Poor's estimated the banking sector's non- performing loans at double the pre-crisis level of 8 percent by the end of 1998.

While the major banks themselves may have avoided significant foreign exchange losses, a substantial portion of their corporate and commercial clients are likely to be in difficulties and some are beginning to come into default, Standard and Poor's said.

It added that the fact the property market was currently being hit hard by the crisis was starting to be reflected in a deterioration in the banks' asset quality and impact negatively on their collateral values.

The U.S. dollar has gained more than 100 percent against the Indonesian rupiah in the currency contagion which erupted after the Thai baht's float on July 2.

It was trading at 5,800 rupiah to the dollar early yesterday compared to the 2,450 rupiah in July.