S'pore's OUB sees more risk from Indonesia

S'pore's OUB sees more risk from Indonesia

SINGAPORE (Reuters): The head of one of Singapore's biggest banks said yesterday Indonesia's escalating crisis had increased the risk of bank lending there and would probably lead his group to make further provisions for possible losses.

Peter Seah, the president and chief executive officer of Overseas Union Bank Ltd, said the Indonesian political and economic crisis, which has left at least 500 people dead, would adversely affect economic growth in neighboring Singapore.

He said OUB was likely to make an announcement on its provisions for the region in general, and for Indonesia in particular, when it released its first half-year financial results, due out in August.

"Clearly in the case of Indonesia, the risk has increased," Seah told reporters at the launch of a new unit trust.

"We will be reviewing the need for further provisioning. But looking at the current state of affairs in Indonesia, I think additional provisioning is likely."

Indonesia has been paralyzed by waves of demonstrations and riots in the last few weeks as students and the poor of its big cities protested against domestic price rises and vented their anger against the authorities.

The price rises were imposed by the government as a condition of a $40 billion economic bailout package led by the International Monetary Fund (IMF) following the collapse of the Indonesian currency, the rupiah, and spiraling corporate debt.

There have been growing calls for the resignation of President Soeharto, who has led Indonesia for 32 years.

Seah said the downgrading by influential U.S. ratings agency Standard & Poor's of some Indonesian sovereign and corporate debt last Friday had been at least partly anticipated by his bank earlier this year.

OUB has already made substantial provisions for bad loans in Southeast Asia. In March, the bank set aside Singapore $316.96 million against its 1997 accounts, a sharp increase from S$83.21 million of provisions the previous year.

And he said OUB's Indonesian risk was "manageable".

"We have some exposure to state banks but non-bank risk is less than S$200 million," he said. Bank risk was not much more than S$60 million, he said.

By no means all Indonesian loans were doubtful.

"Even Indonesian loans come in varying qualities," he said.

Seah said it was too early to quantify how great the bank's provisions for Indonesia would need to be. He said he would have a better idea by the middle of the year and would assess the situation again at the end of the year.

"This is not the right time to make a judgment," he said.

"Every morning when you wake up it is a new situation. So I would rather see events play (themselves) out before making a more professional judgment on Indonesia because it could range from a very peaceful resolution to a very serious outbreak of civil unrest," he said.

"I would rather not make a guess. Nobody can guess what is going to happen," he added.

"But I would say definitely the developments would have a negative impact on us. It is very difficult to measure it because you are dealing with emotions," he said.