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Moody's affirms deposit ratings of five Indonesian banks
Jun 03, 2013

Singapore, May 29th 2013 - Moody's Investors Service has affirmed the Baa3 local and foreign currency deposit ratings of five banks that are listed below.

At the same time, Moody's has raised by one notch its baseline credit assessments (BCA) of four of these banks, with two now being investment grade.

After these rating actions, the affected banks will have the following bank financial strength ratings (BFSRs) and BCAs:

- PT Bank Central Asia Tbk (BFSR/BCA D+/baa3/stable);

- PT Bank Rakyat Indonesia (Persero) Tbk (BFSR/BCA D+/baa3/stable);

- PT Bank Mandiri (Persero) Tbk (BFSR/BCA D+/ba1/stable);

- PT Bank Negara Indonesia (Persero) Tbk (BFSR/BCA D/ba2/positive); and

- PT Bank Permata Tbk (BFSR/BCA D/ba2/stable).

The outlook on the BFSRs is stable in each case, except for Bank Negara Indonesia whose BFSR has a positive outlook.

RATINGS RATIONALE

The higher BCAs for Bank Central Asia, Bank Rakyat Indonesia, Bank Mandiri and Bank Permata and the positive outlook assigned to Bank Negara Indonesia's BFSR reflect three years of consistently strong financial performance, characterized by improving asset quality and strong profitability.

Moody's expects Indonesia's favorable operating environment to persist, supporting asset quality and profitability, which will continue to be among the strongest recorded by banks globally. This will sustain the banks' strong capital generation capacity.

Credit growth has been strong, averaging 18% to 26% among these banks during the past five years. While strong credit growth can frequently be a leading indicator for future asset quality problems, Moody's believes that much of the growth can be explained by the trend of financial deepening after credit penetration had reached very low levels in the wake of the Asia financial crisis in 1997.

Moreover, the exceptionally strong pre-provision profits posted by Indonesian banks provide a powerful buffer in the event that credit costs eventually pick up.

The principal methodology used in these ratings was Moody's Consolidated Global Bank Rating Methodology published in June 2012. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Given below are the individual rating rationales for each of the five banks.

Bank Central Asia

Moody's has raised the BCA of Bank Central Asia by one notch to baa3, from ba1. The action reflects the bank's consistently strong financial performance, solid funding profile, low and steady asset quality, high profitability, and strong banking franchise. It also has dominant positions in the consumer, commercial, and small- and medium-sized enterprise (SME) markets.

We view Bank Central Asia as having the strongest standalone credit assessment in Indonesia and as having the potential to be at a higher level, but we constrain it to the government level given the close correlation of its creditworthiness with that of the government of Indonesia.

Moody's has affirmed the Baa3/P-3 deposit ratings and the Baa3 foreign currency issuer rating of Bank Central Asia. While there is a very high probability of systemic support given the bank's strong position, its deposit ratings do not include any uplift for systemic support because these ratings are at the same level as the sovereign rating. But this means that if the bank's intrinsic credit worthiness were to deteriorate in the future and its standalone credit assessment lowered, it is highly
probable that the bank's long-term deposit and issuer ratings would benefit from support and remain at Baa3.

For Bank Central Asia's BCA and long-term deposit ratings to be raised, an upgrade of the sovereign rating would be needed.

Bank Central Asia is the third-largest bank in Indonesia by assets and deposits. It is also -- by the same measures -- the largest private lender in the country. It accounted for 11.5% of system deposits and 20% of system savings at end-2012.

Bank Rakyat Indonesia

Moody's has raised the BCA of Bank Rakyat Indonesia by one notch to baa3, from ba1. The action reflects the improvement in the bank's asset quality in recent years, its solid and highly profitable micro-financing franchise, as well as its highly capitalized and liquid balance sheet.

Moody's believes Bank Rakyat Indonesia's BCA is appropriately positioned at baa3, and it is unlikely to move up again over the near term, as this would require a combination of both further improvement in its standalone credit profile and an upgrade of the sovereign rating.

Moody's would consider lowering the BCA if the gross adjusted non-performing loan (NPL) ratio, which incorporates restructured loans, increases to 6%.

Moody's has also affirmed the Baa3/P-3 deposit ratings and the Baa3 foreign currency senior unsecured rating of Bank Rakyat Indonesia. While there is a very high probability of systemic support given the bank's strong position, its deposit ratings do not include any uplift for systemic support because the BCA is at the same level as the sovereign rating.

Bank Rakyat Indonesia is the second-largest bank in Indonesia by assets and is 56.8%-owned by the government. It accounted for 13.5% of system deposits at end-2012.

Bank Mandiri

Moody's has raised the BCA of Bank Mandiri by one notch to ba1 from ba2, and the BFSR to D+ from D. The action reflects the bank's consistent improvement in its financial performance in recent years, dominant banking franchise, favorable funding profile, and improving profitability. However, the bank has a weaker asset quality and lower capital buffers compared to the more highly rated peers.

Given the latest rise in its BCA, it is unlikely to move up again over the near term. Moody's would consider lowering the BCA if gross problem loans plus restructured loans -- as a percentage of its gross loans ratio -- exceed 8.0% for an extended period (6.9% at end-2012), and the Tier 1 ratio falls below 11% (13.2% at end-2012) owing to significant credit slippage.

Moody's has also affirmed the Baa3/P-3 deposit ratings of Bank Mandiri. Moody's assumes a very high probability of systemic support, resulting in a one-notch uplift from its BCA.

Bank Mandiri is the largest bank in Indonesia by assets and is 60%-owned by the government. It accounted for 13.5% of system deposits at end-2012.

Bank Permata

Moody's has raised the BCA of Bank Permata by one notch to ba2 from ba3, and the BFSR to D from D-. The BFSR and BCA reflect the bank's improved financial metrics, bringing it on par with similarly rated banks in the region, particularly with respect to asset quality and capitalization.

The BCA also recognizes the continued ongoing support from its two major shareholders, Standard Chartered (BFSR/BCA B-/a1/stable) and Astra International, to the development of its franchise.

Nevertheless, Bank Permata has a much smaller branch network, lower current and savings account ratio, and higher expense profile than the other four banks. To address these shortfalls, the bank is expanding its retail business and increasing its number of branches. However, successful implementation of this strategy will be challenging in Indonesia's competitive environment.

Given the latest rise in its BCA, it is unlikely to move up again over the near term. At the same time, a deterioration in asset quality, such as an NPL ratio of over 2.5%, or deterioration in profitability would indicate undisciplined growth, and could lead to a potential lowering of the BCA.

Moody's has affirmed the Baa3/P-3 deposit ratings of Bank Permata. Moody's assumes a high probability of systemic support, resulting in a two-notch uplift from its BCA.

The bank is the eighth-largest bank in Indonesia by assets and had a 3.3% share of system deposits at end-2012.

Bank Negara Indonesia

Moody's has affirmed Bank Negara Indonesia's BFSR of D, which maps to a BCA of ba2, but has changed the outlook on its BFSR of D to positive from stable.

The positive outlook reflects the bank's improving credit fundamentals over recent years, as characterized by a consistent improvement in asset quality, and a steady increase in profitability. The bank has maintained a well-capitalized and liquid balance sheet. However, the bank's entrenched corporate culture and legacy banking practices may hinder its efforts to improve its weak corporate governance and internal controls in the short term.

Moody's would consider raising the bank's BCA if it exhibits a sustained improvement in profitability through improvements in asset quality and operational efficiency with its adjusted NPL ratio, which incorporates restructured loans, falling below 4.0% (5.70% at end-2012), and its net income-to-average risk-weighted asset ratio rising above 3.50% (3.20% at end-2012).

Moody's has affirmed the Baa3/P-3 deposit ratings and the Baa3 foreign currency senior unsecured rating of Bank Negara Indonesia. Moody's assumes a very high probability of systemic support, resulting in a two-notch uplift from its BCA.

Bank Negara Indonesia is the fourth-largest bank in the country by assets and is 60%-owned by the government. It accounted for 7.7% of system deposits at end-2012.

 

Re-disseminated by The Asian Banker

Categories: Results & Ratings
Keywords: Moody's



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