Standard & Poor's lauds Indonesian banking system's impressive development

Bank failures have been very low.

Standard & Poor's Rating Services has noted that the industry risk trend for Indonesia's banking sector is positive, reflecting an improving institutional framework.

According to a release from Standard & Poor's Rating Services, bank regulation and supervision have improved since the late 1990s when Indonesia faced a banking system crisis.

Fundamentals of the banking system have improved and incidences of bank failures have been very low over the past few years.

The report noted that it believes a track record of effective, proactive, and timely regulatory action to prevent build-up of systemic risks, following a transition of regulatory responsibilities to Financial Services Authority of Indonesia from Bank Indonesia in 2013, would signal a strengthened regulatory framework and lower industry risk.

Here's more from Standard & Poor's Rating Services:

Standard & Poor's Ratings Services today published its "Banking Industry Country Risk Assessment: Indonesia"

We classify the banking sector of Indonesia (BB+/Stable/B; axBBB+/axA-2) in group '7' under our Banking Industry Country Risk Assessment (BICRA) criteria. Other countries in the group include the Philippines, Russia, Bulgaria, Jordan, Morocco, and El Salvador.

Our bank criteria use our BICRA economic risk and industry risk scores to determine a bank's anchor, the starting point in assigning an issuer credit rating. The anchor for banks operating only in Indonesia is 'bb'.

Indonesia's economic risk trend is stable. We expect Indonesia's economic growth to be moderately strong with GDP of 5%-6% for the next several years. We do not expect the government to significantly deviate from a conservative fiscal policy and free market economics. We see a small risk of increased credit losses due to an external shock and a correction in property prices following the rapid growth in commercial real estate prices in recent years.