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.