Repost: S&P Downgrades Indonesian Bank Ratings (FWIW <g>)
Business Wire - January 15, 1998 01:49
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MELBOURNE--(BUSINESS WIRE)--Standard & Poor's CreditWire 1/15/98-- Standard & Poor's today downgraded its ratings on 15 Indonesian banks (see list below). The downgrades reflect the deterioration in economic conditions caused by the rupiah's rapid fall. The sharp currency depreciation has exacerbated the asset-quality difficulties, stemming from rising corporate borrower defaults, facing Indonesian banks. Tight monetary liquidity, with attendant high interest rates, is impacting the ability of borrowers to service debt. Standard & Poor's forecasts that nonperforming loans-to-total loans of the Indonesian banking sector will likely increase to well over 20% during calendar 1998.
The local currency ratings on Bank Negara Indonesia (BNI) are lowered to double-'B'/single-'B' from triple-'B'/'A-3'. The foreign currency ratings were lowered to double-'B'/single-'B' on Jan. 9, 1998, following the downgrade of the Republic of Indonesia's sovereign ratings. The long-term ratings remain on CreditWatch with negative implications, where they were placed on Dec. 16, 1997. The downgrade reflects tightened liquidity and the expectation of a substantial asset-quality deterioration in 1998, leading to weakened profitability and capitalization. The bank's tighter liquidity, as for those of many Indonesian banks, is partly a result of its long foreign currency loans-to-deposits position. The rupiah's depreciation is causing the bank's loan book to increase faster than deposits, when translated into rupiah equivalent terms. Majority ownership by the Indonesian government and the leading role the bank plays in the domestic economy are positive rating factors. These ratings remain on CreditWatch with
negative implications as are the ratings on the Republic of Indonesia. The ratings on the Republic of Indonesia were placed on CreditWatch with negative implications on Jan. 9, 1998.
Standard & Poor's regards as positive the Indonesian government's announced intentions to merge state-owned Bank Tabungan Negara (BTN) into BNI as a subsidiary, and transfer the existing nonperforming loans of BNI into an asset-management company. The impact would be to enhance BNI's market position in the retail sector and reduce nonperforming loans. Details of the merger have not yet been announced and, consequently, have not yet been factored into the current ratings assigned on BNI.
The long-term local currency rating on Bank Internasional Indonesia (BII) is lowered to single-'B'-plus from double-'B'-plus, and the long-term foreign currency rating is lowered to single-'B'-plus from double-'B', while the short-term ratings on the bank are affirmed at single-'B'. The rating outlook is negative. At this rating level, BII is the highest rated private bank in Indonesia, which relative to its domestic peers reflects above average asset quality, capitalization and profitability. However, the downgrade of the long-term ratings of BII reflects tighter liquidity, expected weaker loan quality, profitability, and capitalization emerging from the current economic turmoil. BII is a member of the Sinar Mas Group The ability of the Sinar Mas group to support the bank remains an ongoing rating factor. The ratings are removed from CreditWatch with negative implications, where they were placed on Dec. 16, 1997. The ratings outlook is negative.
The long-term counterparty ratings on Bank Danamon are lowered to single-'B' from double-'B', while the single-'B' short-term counterparty ratings are affirmed. The ratings outlook is negative. Standard & Poor's has often cited Bank Danamon's aggressive growth strategy as a major rating sensitivity and is concerned that the bank's asset quality will deteriorate substantially during 1998 as economic growth slows. A long foreign currency loans-to-deposits position, and localized deposit runs in the latter half of 1997, have curtailed liquidity, as measured by loans-to-deposits. The deposit runs, apparently fueled by unfounded rumors, occurred during periods of acute uncertainty among Indonesian depositors. Bank Danamon's capitalization is expected to come under pressure in 1998. Positive rating elements are Bank Danamon's sound market share, within the Indonesian context, and the proposed introduction of the Salim group and Credit Suisse First Boston as 19% and 10% shareholders. This should strengthen the b
ank's access to capital. The ratings are removed from CreditWatch with negative implications, where they were placed on Dec. 16, 1997. The ratings outlook is negative.
The long-term counterparty ratings on Bank Niaga are lowered to single-'B' from double-'B', while the short-term counterparty ratings are affirmed at single-'B'. These ratings are removed from CreditWatch with negative implications. The ratings outlook is negative. Bank Niaga was placed on CreditWatch negative last year when the Tirtamas Group acquired a controlling stake in the bank. Ownership by the Tirtamas Group introduces a ratings sensitivity to the bank's profile. Standard & Poor's has concerns regarding the high levels of leverage of corporate entities within the Tirtamas group, which could reduce the owner's ability to provide capital support to Bank Niaga if needed. In addition, the Tirtamas Group's ownership of a number of other weaker Indonesian banks raises the possibility that management may at some future stage decide to merge them with Bank Niaga. Compounding this is the current economic climate, which is expected to result in the bank having a weakened financial profile with regards to as
set quality, capitalization and profitability. While the bank's market share is not large, a positive attribute of Bank Niaga is the professionalism of the bank's management.
The long-term counterparty ratings on Bank Umum Nasional (BUN) are lowered to single-'B'-minus from double-'B', while the short-term counterparty ratings are affirmed at single-'B'. Besides an anticipated rise in nonperforming loans, BUN's relatively limited capital flexibility and weakening profitability are grounds for the change in ratings. Standard & Poor's perceives that the bank's traditional market segment of middle commercial borrowers has been hard hit by the economic downturn, leading to rising problem loans. BUN's capitalization is the lowest among its private-sector peers, which provides it with a relatively lower degree of capital flexibility. On unaudited accounts, it appears that BUN reported a negligible net profit after tax for the third quarter of 1997. The bank had a short foreign currency loans-to-deposits position, which helped maintained liquidity at conservative levels, relative to its peers, on a loans-to-deposits basis. The historical growth rate of BUN's loan book, which has been
slower than larger peers over the past five years, is a positive rating factor. The ratings are removed from CreditWatch with negative implications, where they were placed on Dec. 16, 1997. The ratings outlook is negative.
Standard & Poor's also downgraded its public information ('pi') ratings on Bank Ekspor Impor Indonesia (Persero), Bank Rakyat Indonesia (Persero), and Bank Tabungan Negara (Persero) to double-'Bpi' from triple-'Bpi', while the rating on Bank Dagang Negara (Persero) is lowered to single-'Bpi' from triple-'Bpi'. The 'pi' ratings on Bank Bali, Bank Bumi Daya (Persero), Bank Central Asia, Bank Dagang Nasional Indonesia, Bank Dagang Negara (Persero), Lippo Bank and Panin Bank are revised to single-'Bpi' from double-'Bpi'. The 'pi' rating on Bank Duta is withdrawn.
The lowering of the 'pi' ratings on Bank Ekspor Impor Indonesia (Exim), Bank Rakyat Indonesia (BRI) and Bank Tabungan Negara (BTN) to 'BBpi' reflects expected tighter liquidity and rising nonperforming loans. The lowering of the 'pi' ratings on Bank Dagang Negara (BDN) and Bank Bumi Daya (BBD) to 'Bpi' are for the same reasons, and take into account that BDN is likely to be more affected because of its lower precrisis equity-to-assets position. In addition, given BBD's estimated relatively higher existing nonperforming loans, the profile of BBD is less strong than those of other rated state-owned banks. By contrast, BRI and Exim will be less affected, and BTN the least affected, because of their superior capitalization. Pending further details, Standard & Poor's has not factored in the Indonesian government's recently announced plans to merge BDN, Exim, BBD and state-owned Bank Pembangunan Indonesia (Bapindo), and transfer the existing nonperforming loans of these banks into an asset-management company.
Like other Indonesian banks, Bank Bali, Bank Central Asia (BCA), Bank Dagang Nasional Indonesia (BDNI), Lippo Bank, and Panin Bank will experience the adverse effects of the turbulent economic environment. In addition, for banks such as BCA and Lippo Bank, membership of a large conglomerate together with a lack of public disclosure raises concerns of potential related party lending and the ability of the corporate shareholders to provide capital support. Consequently, the 'pi' ratings on these banks have been revised to single-'Bpi' despite some positive elements in their respective profiles. Bank Bali's track record of growing loans more slowly than the bigger private-sector banks should stand it in good stead. In a similar vein, BDNI's slowdown in loan growth in fiscal 1996 may help cushion the bank from increased nonperforming loans arising from its fast loan growth period of 1994-95. While Panin Bank's high equity level makes it the strongest capitalized major bank, it will be unable to avoid the syst
emwide problems confronting Indonesian banking.
OUTLOOK: Negative
The rating outlooks on the banks with counterparty credit ratings, except for Bank BNI, are negative. Standard & Poor's expects the difficulties facing the banking industry to continue over the medium term. Sustenance of the revised ratings is predicated on the respective banks being able to manage the expected increase in nonperforming loans, and that operating conditions do not substantially decline further, Standard & Poor's said. -- CreditWire
RATINGS LOWERED
TO FROM
Bank Danamon Indonesia (P.T.)
Counterparty ratings B/Negative/B BB/Watch Neg/B
Bank Internasional Indonesia (P.T.)
Counterparty ratings
Local currency B+/Negative/B BB+/Watch Neg/B
Foreign currency B+/Negative/B BB/Watch Neg /B
Bank Negara Indonesia (P.T.)
Counterparty ratings
Local currency BB/Watch Neg/B BBB/Watch Neg /A-3
Foreign currency BB/Watch Neg /B
US$145 million senior notes due 2007 BB/Watch Neg
Bank Niaga (P.T.))
Counterparty ratings B/Negative/B BB/Watch Neg/B
Bank Umum Nasional (P.T.))
Counterparty ratings B-/Negative/B BB/Watch Neg/B
PUBLIC INFORMATION RATINGS LOWERED
TO FROM
Bank Ekspor Impor (Persero) (P.T.) BBpi BBBpi
Bank Tabungan Negara (Persero) (P.T.)) BBpi BBBpi
Bank Rakyat Indonesia (Persero) (P.T.)) BBpi BBBpi
Bank Bali (P.T.)) Bpi BBpi
Bank Bumi Daya (Persero) (P.T.)) Bpi BBpi
Bank Central Asia (P.T.)) Bpi BBpi
Bank Dagang Nasional Indonesia (P.T.)) Bpi BBpi
Bank Dagang Negara (Persero) (P.T.)) Bpi BBpi
Lippo Bank (P.T.)) Bpi BBpi
Panin Bank (P.T.) Bpi BBpi
PUBLIC INFORMATION RATING WITHDRAWN
Bank Duta (P.T.))
CONTACT: Terry Chan, Singapore (65) 239-6360
Ken Mclay, Melbourne (61) 3-9250-4530
Roger B Taillon, New York (1) 212-208-1570
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