State banks -- their success and problems
State banks -- their success and problems
By Hendarsyah Tarmizi
JAKARTA (JP): Indonesia's seven state-owned banks are
considered heroes at home, with their success propelling six of
them to be among the top 20 taxpayers in the country. But their
notorious bad debt problems make them unpopular overseas.
Bank Negara Indonesia (BNI) took the fifth slot in the list of
the 200 largest corporate taxpayers in 1994, which was revealed
last week by Tax Director General Fuad Bawazier. Bank Ekspor
Impor Indonesia (BEII) was sixth.
Bank Dagang Negara (BDN) took eighth place, Bank Rakyat
Indonesia (BRI) ninth and Bank Tabungan Negara (BTN) 15th, while
Bank Bumi Daya (BBD) was ranked 20th.
However, a continued increase in their bad debts makes the
banks "very small" in the eyes of the international business
society.
Moody's Investors Service, a U.S. rating company has assigned
very poor grades to the state-owned banks. BNI and BTN received
"D plus", while BEII, BDN and BRI all got "E".
The banks' bad debts have continued to increase despite the
government's serious efforts to tackle the problem.
According to the central bank's latest data, the outstanding
bad debts of the country's banks grew from Rp 9.97 trillion
(US$4.3 billion) as of last June to Rp 10.4 trillion in November,
accounting for 2.4 percent of their total outstanding loans.
The bad debts of the state-owned banks alone, in the same
period, rose from Rp 7.31 trillion to Rp 7.86 trillion,
accounting for 3.04 percent of their total credits.
For comparison, their bad debts stood at Rp 3 trillion in
December 1993.
BNI's acting president, Willy Sambalao, said that he was not
surprised with the low grade assigned by the rating agency to BNI
and other state-owned banks.
He said that the "E' grade was not only assigned to Indonesian
banks. "Tokai Bank of Japan also got the same rating," he told
newsmen recently.
BNI, which is now being prepared for public listing, is not
only considered the most profitable state-owned bank but also has
the soundest financial performance.
Asked if the low rating would affect the public offering plan,
Sambalao said the most important factor for investors is the
profitability of the bank.
Many of BNI's executives were not happy with the Moody's
rating, given the significant improvement in the bank's
performance in the last three years.
BNI, the largest of the seven state-owned banks, recorded a 22
percent rise in its total assets to Rp 37.5 trillion in last
December from Rp 30.7 trillion at the end of 1994. The bank's
profits rose by 31.3 percent to Rp 405.8 billion last year from
Rp 309.2 billion in 1994
The bank's capital adequacy ratio (CAR) was recorded at 9.08
percent last December, surpassing the minimum CAR requirement of
8 percent set by Bank Indonesia, the central bank. The ratio of
BNI's rate of return on assets (ROA) was 1.46 percent last year.
BNI has 479 domestic and six overseas branches -- in
Singapore, London, Tokyo, Hong Kong, New York and on Grand Cayman
Island.
Bapindo's president, Arbali Sukanal, gave a positive response
to the low grade assigned by Moody's to his bank's financial
strength.
"The rating agency reminded us of the difficult challenges we
will have to face in the future, given the tighter competition
from private banks," he said.
Credit risks
With regard to credit risks, international rating agencies
Moody's and Standard & Poors gave more favorable grades to the
state-owned banks despite their mounting bad debts.
Moody's, for example, assigned Baa3 for Bapindo's bonds and
Ba1 for its long-term deposit obligations. The other six state-
owned banks also received a similar rating for both their bonds
and long-term deposits.
The banks' debt and deposit ratings were based mainly on the
strong support given to the banks by its 100-percent shareholder,
the Ministry of Finance, according to the rating firm.
Standard and Poor's also gave the same level of risk
evaluation to the country's state-owned banks. The rating agency
assigned an "adequate" risk credit grade to BBD, BDN, BEII, BNI
and BRI.
The two rating agencies said that problem loans will impede
the state-owned banks' future operations.
The state-owned banks have to continue to reduce their
overheads to enable them to compete in the more competitive world
market, despite receiving strong support from the government, the
two rating agencies noted.
Local analyst Rizal Ramli, an executive of the Economic,
Industrial and Trade (Econit) advisory group, also warned that
the market share of the state-owned banks will continue to
decline because they are unable to be as competitive as private
banks.
The state-owned banks' share in the country's total banking
assets, funds and credits declined from 80 percent in the early
1980s to below 40 percent last year.