S&P: Bank Mandiri probe shows risks

Standard & Poor's said that the probe of improper lending practices in PT Bank Mandiri (Persero) (foreign currency B+/positive/B; local currency BB-/stable/B) reflects the high operational risk in the Indonesian banking sector.

On Bank Mandiri, it is, nevertheless, too premature to determine the impact on the bank following the attorney general office's current probe, which could result in estimated losses of Indonesian rupiah 1 trillion, the agency said.

S&P said the investigation relates to allegations that the bank's lending practices have not adhered to the bank's internal credit policies. The estimated losses are the equivalent of one-fifth of the bank's net profit for 2004, or about 4% of shareholders' equity. Nevertheless, the rating levels currently assigned on the bank already take into consideration that it has much room for improvement in risk management and corporate governance systems.

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