Fitch: Indonesia banks to improve

Fitch Ratings said in an upcoming special report that the financial performance of Indonesia's banks is generally expected to improve this year against a backdrop of benign interest rate conditions and stronger GDP growth in the country.

This supports the positive outlook on the international ratings of the 10 larger banks covered by Fitch, which are rated BB-. The underlying profitability of the banks in 2006 remained quite good despite the more difficult operating climate in the first half of the year, the agency said.

While Fitch recognizes the benefits of the current consolidation in the sector to create a more robust banking system with fewer but larger players, the agency said it is also mindful of the potential negative effects of "forced" rationalization, which can be detrimental to the value of the banks and disruptive to the banking system.

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