Standard & Poor's defends appraisal of local banks
Standard & Poor's defends appraisal of local banks
JAKARTA (JP): A spokesman for Standard & Poor's, an American
rating company which has been criticized for its recent appraisal
on the Indonesian banking industry, defended its conclusions,
yesterday, saying that the valuation was made under standardized
procedures.
"The procedures are correct. We conducted extensive
discussions with all the banks concerned, including the central
bank (Bank Indonesia), for our studies," Jeffrey R. Paterson,
managing director of international finance for the Asian region
of Standard & Poor's Ratings Group, told The Jakarta Post in an
interview here yesterday.
Standard & Poor's said in its ASEAN Banking Profile report in
late April that the Indonesian banking industry is currently
undergoing a period of financial stress and adjustment as a
result of deregulation in the late 1980s and early 1990s.
Consequently, the medium-term outlook for the banking sector is
considered to be one of uncertainty and instability.
Governor of Bank Indonesia J. Soedradjad Djiwandono recently
questioned the validity of the rating agency's judgment. This was
because, according to him, the evaluation had been made by its
banking division which had no authority to set a rating.
He felt that the banking division only had the function of
collecting banking data for the benefit of investors who make use
of Standard & Poor's services, while the rating authority
belonged to its sovereign division.
Paterson said yesterday that all the information used for the
assessment was based, in fact, on the latest published
information in 1992 and another updated information made
available by banks.
He argued direct discussion and analysis of banks' financial
reports were normal matters, which were also used by the agency
for conducting the rating of various business sectors worldwide.
He acknowledged that the rating authority is in the hands of
the sovereign division. "But between the banking and sovereign
divisions, there is no difference in importance," he said. He
added that the banking division had an equal share of collecting
information related to the development of the banking industry in
the world.
Personnel assigned to the banking and sovereign divisions are
more or less the same, which means that the evaluation made by
the agency's banking division is also valid for the rating
division, he said.
He said the banking division has a specific job because it is
also responsible for making recommendations as part of its
services of offering opinions to customers.
Paterson was here to participate in a two-day Euromoney
conference which ended here yesterday.
Loans
Paterson said his group found the weakest part of Indonesian
banking to be the country's state-owned banks. This situation was
almost completely due to non-performing loans and high loan
concentration.
According to the monetary authorities, non-performing loans at
seven state banks swelled by 360 percent within the past three
years to more than Rp 14.97 trillion or 21 percent of their total
outstanding loans, as of last October.
"As for the private banks, the agency found a relatively high
loan concentration towards certain corporate groups which has
caused some difficulties," Paterson said.
Standard & Poor's warned that private banks' close affiliation
with corporate groups has raised concerns regarding lending and
loan concentrations.
The London-based Banking Credit Analysis (IBCA), which is
responsible for issuing bank ratings, shared Standard & Poor's
assessment. They said that the sorry state of Indonesian banking
was partly due to the absence of the profit motivation, combined
with the burden of a political mission set by the government.
IBCA's managing director, Robin Monro-Davies, reported that
the rates of return on assets and equities at Indonesia's state-
owned banks are the lowest in Asian countries.
Both Monro-Davies and Paterson concurred that the absence of
transparency, disclosure and independence of management have
created an unstable environment at both private and state banks.
Context
Paterson said Standard & Poor's judgment is made not to
discourage the country's banking industry. "It is not a criticism
of the current regulators or management," he pointed out.
"Because we are a global rating agency and investors are
looking for opinions on various banking systems and Indonesia has
become one of those in the Asian countries, we offered the
services," he added.
He greeted the government's step to establish a new credit
rating agency, showing that it is seriously committed to
developing the industry.
Meanwhile, Soedradjad told the conference yesterday that the
monetary authority had embarked on various efforts to reduce
problem loans in the country.
"In an effort to improve rules governing the recovery of bad
debts, for example, the central bank has conducted intensive
discussions with the Supreme Court, the Ministry of Justice, the
Office of the Attorney General, the National Land Agency and the
State Receivership Agency," he said.
The central bank has also required commercial banks facing
substantial bad loans to form special teams for their recovery or
settlement. "The central bank also set up a special task force
for settling bad debts which is responsible for supervising the
teams set up by commercial banks," he said. (fhp)