Fitch IBCA Ratings - Press Releases - NEW RATING FOR INDONESIA'S BANK NEGARA INDONESIA

Fitch

Established in 1913

NEW RATING FOR INDONESIA'S BANK NEGARA INDONESIA
24 December 1997

London/Singapore: Fitch IBCA, the international rating agency, has assigned an Individual rating of D and changed the Legal rating of PT Bank Negara Indonesia from 2 to 2T.

Bank Negara Indonesia (BNI) is Indonesia's largest state-owned bank and second largest bank overall with about an 8% share of banking system loans. Historically, the bank's focus was on supporting national development through lending to the manufacturing sector. However, it has since been transformed into a full commercial bank. It is the most dominant corporate bank in Indonesia and its customers include most of the major Indonesian corporates. BNI was historically the best of the Indonesian state banks and was therefore the first bank that the government chose to partially privatise. In 1996, 25% of the banks shares were sold to the public with the government continuing to hold the balance.

The bank has performed well over the past few years, but the strong performance was due to strong growth in non-interest income and reduced provisions rather than interest revenue growth. Margins across the industry have been squeezed, particularly in corporate lending, due to increased competition from the fast growing private banks. BNI has the best asset quality amongst the state banks with a gross non-performing loan/loan ratio of 6.0% as of September 1997. The severe depreciation of the rupiah and the high interest rates since August have led to a serious deterioration in the operating environment for Indonesian banks. Unless interest rates come down and the rupiah stabilises, we expect a significant number of companies to default over the coming months which will severely affect the asset quality of Indonesian banks, including BNI. We expect non-performing loans for the banking system to at least double in 1998. As of September 1997, the bank's total capital/weighted risks ratio was 9.8%, having declined from 11.8% at end-1996. About 32% of BNI's loans are denominated in US dollars and the rupiah's devaluation has inflated US dollar risk assets, reducing the bank's capital ratios.

Fitch IBCA's Legal rating of "2" for BNI is being changed to "2T", indicating the potential of transfer risk arising, given the recent political, economic and financial developments in Indonesia. All state banks have been supported historically but the possibility of the government imposing foreign exchange controls means that there is potential transfer risk of economic origin, which might prevent support for foreign currency creditors. Fitch IBCA's assignment of the 'T' suffix follows its downgrade of Indonesia's sovereign rating to non-investment grade on December 22nd 1997.

Contact:
Sam Chin, Singapore 牋牋牋 Tel: +65 221-3350
Andrew Sniffin, New York 牋牋牋 Tel: +1 212 687 1507

Notes to Editors: Fitch IBCA's Legal and Individual Ratings for Banks
Legal ratings deal with the question of whether an institution would receive support either from owners or governmental authorities if it ran into difficulties. While we consider the Legal rating to be a prime factor in the assessment of credit risk, Fitch IBCA's Individual ratings permit an evaluation divorced entirely from any consideration of outside support: "If the bank were entirely independent and could not rely on support from state authorities or its owners, how would it be viewed?".

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