State banks' outlook

State banks' outlook

HONG KONG (Reuter): Moody's Investors Service said yesterday it was revising its ratings outlook for Indonesia's state banks to uncertain from stable pending a decision on planned mergers among the seven institutions.

Moody's said its existing ratings for the state banks remained unchanged and it did not expect the mergers, however implemented, to affect the debt or deposit ratings of the banks, which are based largely on their status as government banks.

The Bank Financial Strength Ratings (BFSR) of the surviving bank or banks will depend on which institutions are combined and on the terms of the mergers, Moody's said.

Indonesia's Ministry of Finance announced on June 20 that the government plans to merge the state banks to improve competitiveness.

Two issues are key for future rating actions, Moody's said.

First, the very high level of problem loans at the two banks with "E" BFSR ratings -- Bank Bumi Daya and Bank Pembangunan Indonesia -- will need to be addressed if they are not to bring down the ratings of the banks with which they merge.

Second, the banks' ability to achieve operating efficiencies will depend on whether the government constrains or assists the banks in handling redundant personnel, Moody's said.