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December 17, 2007 |
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* Moody's Sees Stable Outlook for Indonesian Banks Moody's Investors Service says that the ratings outlook for Moody's 11 rated Indonesian banks is stable, while their financial fundamentals should remain steady. "Moreover, relative the current global credit turmoil, Indonesian banks have escaped any direct effects, given the absence of exposures to collateralized debt obligations or structured investment vehicles," says Beatrice Woo, a Moody's VP/Senior Credit Officer and the author of its latest outlook on Indonesia's banking system. "The country's regulators do not permit such investments and bank managements in Indonesia are more concerned about the indirect impact of the sub-prime issue on global macro-economics and hence the Indonesian economy," says Woo. "Importantly, creditworthiness -- that is manageable asset quality, modest economic capital solvency, improved profitability and reform - will be broadly sustained," says Woo. "On balance, Indonesian banks are better equipped to absorb stress, while managements have responded quickly to adverse circumstances," says Woo, adding, "We expect the divergence between the performances of state-owned banks and rated private- owned banks to continue in the near term." Woo's just-released report covers a wide range of topics, including consolidation, operating performance, the regulatory environment, the level of government participation, and financial fundamentals, such as asset quality and liquidity. Consolidation and divestment have pared the number of players by a third, but excess capacity remains, the report says. As Indonesia's top four banks control just under half of system deposits, the other 126 are unlikely to achieve economies of scale. In the current divestment process, an increasing proportion of system assets have ended up with strategic foreign investors, and the new resultant bank managements will introduce global best practices and operate on a more commercial basis, prompting other domestic banks to follow. The report says the government remains the industry's largest shareholder, albeit much reduced, controlling 25% of system assets. On balance, from a credit perspective, structural developments have been positive, and pricing discipline and market stability should eventually return. The banks' weighted average bank financial strength ratings rose to D from E+ on May 4, 2007, when Moody's implemented its BFSR and refined Joint Default Analysis methodologies. At the same time, their long-term foreign currency debt and deposit ratings were unchanged, already constrained by the country's foreign currency ceilings. On October 18, 2007, the long-term foreign currency credit ratings were raised - debt to Ba2 from Ba3 and deposit to B1 from B2 - in line with a similar action on Indonesia's sovereign ratings. For comparative purposes, the weighted average Indonesian BFSR during the 1997 financial crisis was E against a pre-crisis D. |
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