S&P Revises Outlook on Indonesian Banks.

MELBOURNE--(BUSINESS WIRE)--Standard & Poor's CreditWire 8/21/97-- Standard & Poor's today affirmed its ratings on Bank Negara Indonesia (P.T.), Bank Danamon Indonesia (P.T.) and Bank Umum Nasional (P.T.) but revised the outlook on these ratings to negative from stable. Bank Niaga (P.T.) remains on CreditWatch with negative implications, where it was placed on July 30, 1997.(see list below). The outlook revision reflects Standard & Poor's expectation that both the asset quality and profitability of Indonesia's banks will weaken as a consequence of the increasingly challenging financial environment. Although some banks, through having positive U.S. dollar or marginally open Indonesian rupiah positions, may have escaped losses from the rupiah's recent sharp depreciation, the same may not hold true for corporate and commercial customers. This may lead to a deterioration in asset quality over the short to medium term. In addition, the weakened performance of the Indonesian stockmarket and increasing evidence of oversupply in some sectors of the real estate market gives rise to possible concerns regarding collateral values against loans extended. The continuing tight liquidity policy of the government should assist in maintaining interest rates at current high levels and lead to further margin pressure in what is already a very competitive market. These factors will impact adversely on the financial profile of all financial institutions in Indonesia. Those institutions which are larger and have realized greater economies of scale, or have a greater degree of geographic and business diversity, or which have exercised more prudent growth strategies, should have a greater degree of relative flexibility to weather these conditions.

While Bank Negara Indonesia (Bank BNI), which ranks as Indonesia's second-largest bank based on its asset size and wide distribution network, has a competitive market position, the bank is still in transition from a wholly state-owned corporate focused bank to a partly privatized more universal bank. The transformation is not yet complete, with Bank BNI still writing off nonperforming loans (NPL) from its prefloatation days. Both profitability and asset quality are expected to come under some downward pressure as Bank BNI, despite its strong market position is not immune from the changes in the macroeconomic environment. The introduction of fresh asset-quality problems may push NPLs up from the 6.1% 1996 level which, while reasonable in an Indonesian context, is moderately high on an international comparison.

Relative to its more rapidly growing domestic peers, Bank Umum Nasional has exercised a prudent growth strategy that gives rise to reduced concerns with regard to embedded asset quality. However, in the current environment, Bank Umum Nasional is expected to experience some margin pressure relative to larger more diversified Indonesian banks. These banks tend to benefit from greater economies of scale and have greater flexibility to withstand intense price competition, which is becoming characteristic in the Indonesian market for quality borrowers. This reason, together with the general impact of weakening business conditions, has caused Standard & Poor's to revise the outlook on the ratings on Bank Umum Nasional to negative.

Rapid asset growth in recent years has been the hallmark of several of the major private-sector Indonesian banks, including Bank Danamon. Standard & Poor's perceives that an economic slowdown is likely to cause a disproportionate deterioration in the asset book of a rapid growing bank than that of a more conservative slower growing one. This, together with the general impact of weakening business conditions, has caused Standard & Poor's to revise the outlook on the ratings on Bank Danamon Indonesia to negative.

Bank Niaga was placed on CreditWatch with negative implications as a result of the recent acquisition of a controlling stake in the bank by the Tirtamas Group, Standard & Poor's said. -- CreditWire

OUTLOOK REVISED; RATINGS AFFIRMED

          To                                  From

Bank Negara Indonesia (P.T.)
     Counterparty ratings          BBB/Negative/A-3    BBB/Stable/A-3
     US$145 mil sr nts due 2007    BBB/Negative        BBB/Stable
Bank Danamon Indonesia (P.T.)
     Counterparty ratings          BB/Negative/B       BB/Stable/B
Bank Umum Nasional (P.T.)
     Counterparty ratings          BB/Negative/B       BB/Stable/B

RATINGS ON CREDITWATCH

Bank Niaga (P.T.)                  BB/Watch Neg/B

CONTACT: Terry Chan, Melbourne (61) 3-9250-4532

Ken Mclay, Melbourne (61) 3-9250-4530

Ernest D Napier, New York (1) 212-208-1556