Banking regulations in Indonesia lagging international standards: S&P

SINGAPORE - Economic risks faced by banks in Indonesia remain relatively high due to low per capita income and constraints on economic development that infrastructure shortfalls, legal uncertainties, and corruption pose, according to a paper on banking industry risk published by Standard & Poor’s.

“Additionally,” says S&P, “in our view, weaknesses in payment culture and adherence to rule of law could significantly weaken creditors' ability to enforce their rights as reflected in the low recovery rates and time taken to resolve insolvencies.

“However, Indonesia's stable domestic credit relative to GDP, moderation in credit growth and property prices in real terms over the past few years, and moderately conservative lending and underwriting standards in the banking sector are supporting factors.”

S&P classifies the banking sector of Indonesia as (BB+/Positive/B; axBBB+/axA-2) in group '7' under its Banking Industry Country Risk Assessment (BICRA) criteria. Other countries in the group include the Philippines, Portugal, Bulgaria, Jordan, Morocco, and El Salvador.

“We consider banking regulations in Indonesia as lagging international standards, although they have improved markedly,” S&P says.

“In our view, risk appetite in Indonesia's banking system is moderate, with manageable asset growth and commercial practices. The presence of complex or risky products and of high-risk lending is limited.

“Core customer deposits predominantly fund the Indonesian banking sector's loan book, which provides stability to the banks' funding profiles.”  www.standardandpoors.com (ATI).