August 19, 2014 / 2:01 AM / 3 years ago

Fitch: Indonesian Regional Banks Challenged by Access to Capital

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: Indonesian Regional Development Banks here JAKARTA, August 18 (Fitch) Fitch Ratings says access to new capital and corporate governance continue to be the biggest challenges that Indonesia's regional banks face in supporting their rapid loan growth. The financial positions of the regional governments in Indonesia, which are the major shareholders of the BPDs, are considered weak, limiting the capital they can provide to the banks, Fitch says in a new special report. In addition, many regional development banks, known as Bank Pembangunan Daerah (BPDs), do not have appropriate corporate governance due mainly to weak internal controls, poor accounting practices and ineffective risk management. Intervention from regional governments also makes it difficult for the banks' management teams to conduct business prudently. There are 26 BPDs in 31 provinces in Indonesia. Although they have high market shares in their respective regions, their contribution to the overall banking system remains small, at about 8% of total banking assets as of end-2013. Fitch's ratings on the banks reflect the potential support they may receive from the central government through the regional governments. The BPDs are important to the central government, which use them to channel funds to pay civil servants and finance government special projects. Their importance will grow as Indonesia's regions contribute to a larger share of national revenue. The BPDs' financial performances are expected to come under pressure in the short term due to the weaker economic environment and rising interest rates, which will hurt the sector's margins and asset quality, which is already weaker than the average for the wider banking sector. This compares with the recent past when profitability has been helped by rapid loan growth and wide margins. The report titled "Indonesian Regional Development Banks" is available on www.fitchratings.com or by clicking on the link above. The ratings of the four Fitch-rated Indonesian regional development banks are: PT Bank Pembangunan Daerah Riau-Kepri National Long Term Rating at 'A(idn)'; Outlook Stable PT Bank Pembangunan Daerah Lampung National Long Term Rating at 'A(idn)'; Outlook Stable PT Bank Pembangunan Daerah Sulut National Long Term Rating at 'A(idn)'; Outlook Stable PT Bank Pembangunan Daerah Maluku National Long Term Rating at 'A(idn)'; Outlook Stable Contacts: Iwan Wisaksana Director +62 21 2988 6807 PT Fitch Ratings Indonesia DBS Bank Tower 24th Floor Suite 2403 Jl. Prof. Dr. Satrio Kav 3-5 Jakarta, Indonesia 12940 Julita Wikana Director +62 21 2988 6808 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com. Additional information is available at www.fitchratings.com ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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