S&P upgrades ratings on Mandiri, Danamon

Standard & Poor's Ratings Services, an international rating agency, said on Friday it had upgraded the credit rating on Bank Mandiri and Bank Danamon by one notch.

The long-term local currency counterparty credit ratings on the two banks were raised from "B" to "B+", with the outlooks on these rating being stable, S&P said in a press release.

At the same time, it added, the long-term foreign currency and short-term local and foreign currency counterparty credit ratings on both banks were affirmed at "B" and "B". The outlook s on the ratings remained also stable.

"These ratings actions recognize the continuing, if gradual, improvement in the banks' credit profiles. In particular, there has been improvement in non-performing assets and profitability. Profitability, supported by better interest margins, is becoming much more satisfactory.

"Loans however, continue to make up only a small percentage of the asset book, indicating that the Indonesian banking sector has not fully recovered to its pre-1997 crisis financial intermediary role. Naturally, there will be some added credit risk to the bank's asset book as the proportion of loan rises," Adrian Chee, credit analyst at the agency said in the statement.

Mandiri, the country's largest bank, won praised for its intensified efforts in improving its loan restructuring and recoveries, as well as for disposing some of its foreclosed properties and writing off its loss accounts.

The agency also noted that as of the first semester, the bank's efficiency -- as measured by the ratio of non-interest expense to average assets -- has improved to 1.6 percent. -- JP