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Web-only Exclusives
November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

From Our Correspondent: A Rough Road Ahead
Bad news for the Philippines - and some others

From Our Correspondent: Making Enemies
Indonesia needs friends. So why is it picking fights?

Asiaweek Time Asia Now Asiaweek story

The Banks in the Balance

Indonesian lenders are not like the Thai ones

By Assif Shameen


INDONESIA LAST WEEK BECAME the latest victim of destabilizing currency attacks, when the rupiah fell 5.4% against the U.S. dollar but later recovered by one-third. Amid such turmoil, equity investors might well wonder if the time is right to exit Indonesian bank stocks -- especially considering the travails being endured by overextended lenders in Thailand, the collapse of that country's stock market, and the subsequent devaluation of the Thai baht.

Not so fast. While some of Indonesia's largest banks are, like Thailand's, riddled with problem loans, many are state-owned and unlisted. The country has some well-run private banks that are publicly traded -- institutions that stand to post good earnings growth in coming years, analysts say. Why? The Indonesian economy is still expanding rapidly, with annual GDP growth expected to be about 7% for the next two or three years.

"Indonesian banks don't belong in the same boat as Thai banks or even banks in the Philippines or Malaysia," two countries whose economies and currencies are also under strain, says Raymond Lee, a regional bank analyst for Lehman Brothers in Jakarta. Loan growth in Indonesia averages about 20% a year; interest margins have dropped from more than 6% in 1992 to 4%, yet they are still among the highest in East Asia. "Where else in Southeast Asia can you find banks in such good shape?" asks Joshua Tanja, senior bank analyst for PT W.I. Carr Securities in Jakarta.

Top picks among analysts include Bank Internasional Indonesia. BII is favored by foreign investors who prize its stability and track record. Ronny Rusli, an analyst for ING Barings Indonesia, rates BII a "buy." But Lee thinks BII's price/earnings ratio is simply too rich. Shares are trading at about 15 times 1997 earnings, compared with 11 times for other Indonesian banks.

While BII is widely esteemed, Lippo Bank has been tarred by the involvement of its parent, Lippo Group, in a U.S. political scandal over allegedly illegal campaign contributions. That, along with a reputation for ignoring the needs of minority shareholders, has undermined Lippo shares. Rusli smells a buying opportunity. The bank enjoys strong franchises in commercial lending and banking as well as in retail. "Whatever you may think of Lippo, the fact is that it has good exposure in segments that are growing fast," Rusli says.

Smaller institutions may also offer opportunity to investors. Joshua favors Bank Niaga. "It is conservative, and has a good track record and good management," he says. Other picks are Bank Bira, a success in investment banking, and Bank Tiara, a niche player that enjoys typically high margins by catering to consumers and businesses.

There may be bumps ahead. The Indonesian central bank has practically frozen development loans for construction of shopping malls, luxury condos and office towers. That will slow growth of property lending -- previously running at 35% a year -- and hurt profit margins. But by taking conservative steps, regulators may help avoid the meltdown that hit Thailand's overexuberant financiers.

All money values in U.S. dollars except share prices, which are in Indonesian rupiah. Sources: Asiaweek Research, Datastream, First Call/World Equities


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