Bank Shares Drop
Wednesday, 10 January, 2007 | 12:55 WIB

TEMPO Interactive, Jakarta: The share prices of several banks listed on the Jakarta Stock Exchange have dropped significantly after Merrill Lynch announced national banking sector rankings.

“These drops were influenced by the ranking downgradings by Merrill Lynch,” Edwin Sebayang, an analyst at Evergreen Capital, was quoted as saying by AFX Asia.

Bank shares whose prices dropped significantly include PT Bank Mandiri Tbk. with a drop of Rp175 (6.14 percent) to Rp2,675.

This share price decrease of the largest bank in Indonesia triggered other blue chip bank share decreases including PT Bank Danamon Indonesia Tbk., PT Bank Central Asia Tbk., and PT Bank Rakyat Indonesia Tbk.

Not long ago, Merrill Lynch issued a report that contains ranking cut-offs for Indonesian banks.

This global financial institution said it considered that share prices in Indonesia were too high following sharp increases in 2006.

During 2006, banking share prices (in Rupiah) increased by an average of 45.7 percent.

These rises were greatly influenced by Bank Indonesia's step in cutting the BI Rate by 50 basis points.

Between May until December 2006, the central bank cut the BI Rate by a total of 300 basis points: from 12.5 percent to 9.75 percent.

Satrio Utomo, an analyst from Recapital Asset Management, added that the drop in the price of banking shares was certainly influenced by Merrill Lynch's report.

In the report, Merrill Lynch also decreased Bank Mandiri’s ranking because of its high non performing loans (NPLs).

“The drop in the price of Bank Mandiri shares spread out to other banking shares,” he said.

Previously, according to Satrio, investors were optimistic that improvements to Bank Mandiri’ NPL ratio could improve its performance this year.

However, up until January 2007, Bank Mandiri has not yet been able to settle its NPLs at PT Kiani Kertas.

“It was this situation made Merrill Lynch to lower the rating of Bank Mandiri. This resulted in a decrease in the price of the bank's shares on the stock exchange,” he said.

Muchtar Wijaya/Padjar Iswara/Anne L. Handayani