RPT-Fitch Affirms Indonesia's BCA, Danamon and Panin; Outlook Stable

Tue May 20, 2014 5:59am EDT

Related Topics

(Repeat for additional subscribers)

May 20 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has affirmed the ratings of Indonesia-based PT Bank Central Asia Tbk (BCA), PT Bank Danamon Tbk (Danamon) and PT Bank Pan Indonesia Tbk (Panin). The rating Outlooks are Stable. Fitch has also assigned National Short-Term Ratings of 'F1+(idn)' to BCA and Danamon, a Short-Term Issuer Default Rating (IDR) of 'B' to Panin and Support Rating Floor of 'BB' to Danamon. A full list of rating actions is provided at the end of this commentary.

'AAA(idn)' Long-Term National Ratings denote the highest ratings assigned by Fitch on its national rating scale for that country. This rating is assigned to issuers or obligations with the lowest expectation of default risk relative to all other issuers or obligations in the same country.

'AA(idn)' Long-Term National Ratings denote expectations of very low default risk relative to other issuers or obligations in the same country. The default risk inherently differs only slightly from that of the country's highest rated issuers or obligations.

'F1(idn)' Short-Term National Ratings indicate the strongest capacity for timely payment of financial commitments relative to other issuers or obligations in the same country. Under the agency's National Rating scale, this rating is assigned to the lowest default risk relative to others in the same country. Where the liquidity profile is particularly strong, a "+" is added to the assigned rating.

KEY RATING DRIVERS - IDRs, VRs and National Ratings

BCA's IDRs, Viability Ratings (VRs) and National Ratings reflect Fitch's view that its strong credit fundamentals will continue to be underpinned by its business model that focuses on low-risk transactional banking and will remain comparable with higher rated peers' in emerging markets over the medium term. However, the credit profile is constrained by BCA's operating environment. BCA has demonstrated resilient and strong performance in terms of asset quality and profitability through economic cycles. It has built up a substantial loss absorption buffer against more challenging operating conditions, with Fitch Core Capital (FCC) ratio at 17.5% and loan loss provision at 1.8% of gross loans at end-1Q14.

Danamon's IDRs, VRs and National Ratings reflect its strong capital profile (FCC ratio at 19% at end-1Q14) and satisfactory profitability and its relatively weaker funding profile. The bank's loan-to-deposit ratio remains high and well above the industry average. The bank heavily relies on high cost deposits, with non-CASA (current account and saving account) deposits making up around 60% of total deposits at end-1Q14. The bank's focus on mass-market lending results in non-performing loan (NPL) ratios that are higher than the industry average, but this is mitigated by its strong interest margins. Fitch expects the bank's profitability to moderate from a high base, given an expected rise in funding and credit costs and slower growth in mass-market loans.

Panin's IDRs, VRs and National Ratings reflect declining and below-average capitalisation, moderate asset quality, and modest earnings compared with higher-rated Indonesian banks. Panin's core capital has gradually declined, but it remained satisfactory with FCC ratio at 15.7% at end-1Q14 due to strong credit growth (23% CAGR in 2011-2013). Loan growth moderated to 13% in 2013 from very strong growth of 28% CAGR in 2011-2012, but remained faster than the increase in its internal capital generation. Fitch expects Panin to further reduce its loan growth to conserve capital and improve asset quality.

The Stable Outlooks reflect Fitch's expectation that the three banks will be able to comfortably cover the potential increase in non-performing loans and rise in credit and funding costs without impairing capital due to their satisfactory pre-provision profits and loan loss provisions. In addition, Indonesian regulators' recent moves, including implementing stricter requirements in borrowers' down payment and banks' loans-to-deposits ratios in 2013, will help to prevent the build-up of excessive risk in the system.

RATING SENSITIVITIES - IDRs, VRs, and National Ratings

BCA's ratings are sensitive to overly aggressive asset expansion, a significant change in its business model resulting in greater appetite for risks and/or a sharp deterioration of the operating environment manifested by a lower sovereign rating.

Danamon's ratings are sensitive to its funding and liquidity profile. Rating upside for Danamon may result from material improvement in its franchise and flexibility in funding and liquidity while maintaining sound asset quality. For Panin, rapid loan expansion, which could negatively affect its capital and funding position in a difficult economy, may result in a downgrade to the bank's VR. However, as the 'BB' IDR of Panin is at the same level as its SRF, the IDR will not be affected by a downgrade of the bank's VR, unless considerations underpinning its 'BB' SRF also weaken. Sustained improvements in its ability to generate capital and asset quality are positive for an VR update.

RATING DRIVERS AND SENSITIVITIES - SUPPORT RATING (SRs) and SUPPORT RATING FLOOR (SRFs)

BCA's, Danamon's and Panin's SRs and SRFs, reflect Fitch's view of a moderate probability of extraordinary state support available to them, if needed. Fitch believes that these three banks are systemically important to the country because BCA, Danamon and Panin are the third, sixth and seven largest banks in Indonesia by assets, respectively. A change in the government's ability and willingness to provide extraordinary support would affect these banks' SRs and SRFs.

The list of rating actions is as follows:

BCA:

Long-Term IDR affirmed at 'BBB-'; Outlook Stable

Short-Term IDR affirmed at 'F3'

National Long-Term Rating affirmed at 'AAA(idn)'; Outlook Stable

National Short-Term Rating assigned at 'F1+(idn)'

Support Rating affirmed at '3'

Support Rating Floor affirmed at 'BB+'

Viability Rating affirmed at 'bbb-'

Danamon:

Long-Term IDR affirmed at 'BB+'; Outlook Stable

Short-Term IDR affirmed at 'B';

National Long-Term Rating affirmed at 'AA+(idn)'; Outlook Stable

National Short-Term Rating assigned at 'F1+(idn)'

Support Rating affirmed at '3';

Viability Rating affirmed at 'bb+'

Support Rating Floor assigned at 'BB'

Panin:

Long-Term IDR affirmed at 'BB'; Outlook Stable

Short-Term IDR assigned at 'B'

Viability Rating affirmed at 'bb'

Support Rating affirmed at '3'

Support Rating Floor affirmed at 'BB'

FILED UNDER: