June 12, 2014 / 10:07 AM / 3 years ago

RPT-Fitch Upgrades Indonesia's BTPN at 'AA(idn)'/Stable

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June 12 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has upgraded PT Bank Tabungan Pensiunan Nasional Tbk's (BTPN) ratings, including its National Long-Term rating to 'AA(idn)' with Stable Outlook from 'AA-(idn). Fitch has also simultaneously assigned BTPN a National Short Term Rating of F1+(idn). A full list of rating actions is found at the end of this commentary.

'AA' 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' National Ratings indicate the strongest capacity for timely payment of financial commitments relative to other issuers or obligations in the same country. On Fitch'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

The upgrade of BTPN's National Long-Term Rating reflects a higher propensity of support from its major shareholder Sumitomo Mitsui Banking Corporation (SMBC, 'A-'/Stable). SMBC increased its stake in BTPN to 40% from 25% in March 2014. The rating also reflects SMBC's support in the form of a liquidity facility to BTPN at the initial amount of US$ 100m and that the operational linkages between BTPN and SMBC are expected to increase further in future.

While BTPN has been SMBC's largest acquisition, Fitch classifies BTPN as being of limited importance to SMBC in line with its criteria on rating financial institution subsidiaries and holding companies. The agency believes that Indonesia is an important market for SMBC given the country's rapid economic growth. However, the Indonesia-based bank has limited synergies with SMBC and is likely to continue to operate with significant management independence in the near term. SMBC also plans to retain the existing BTPN brand and has currently no plans to share its name and branding with BTPN.

BTPN's capitalisation is among the highest in the domestic banking industry. Its Fitch Capital Core (FCC) ratio stood at 24% and non-performing loan (NPL) ratio low at 0.4% at end-2013. BTPN's net interest margin (NIM) is also one of the highest among Indonesian banks, although it has been declining due to tight competition and higher funding costs. Fitch believes BTPN's capitalisation and profitability remain solid with satisfactory asset quality in the near to medium term. Moreover, Fitch expects BTPN's deposit franchise to improve in the long term when SMBC shows stronger commitment in providing cheaper cost of funds to BTPN.

Rating Sensitivities

Positive rating action may be possible if SMBC becomes a majority shareholder in BTPN given that SMBC is a higher rated institution. SMBC's greater involvement in management and stronger integration in areas such as risk management may also lift BTPN's rating. Conversely, any perceived weakening of support from or significant dilution in ownership by SMBC would put pressure on BTPN's National Rating.

The Stable Outlooks reflect Fitch's expectation that BTPN will largely maintain a steady risk profile over the near to medium term despite more challenging economic conditions such as political uncertainties and a higher interest rate environment.

The rating actions on BTPN are:

- National Long Term rating upgraded to 'AA(idn)'; Outlook Stable

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

- Bond I/series B 2014 upgraded to 'AA(idn)'

- Bond II/series B 2015 upgraded to 'AA(idn)'

- Bond III/series B 2015 upgraded to 'AA(idn)'

- Bond programme I in the amount of IDR 2.5tn upgraded to 'AA(idn)'

- Bond programme I/Trance I series A 2014 and series B 2016 upgraded to 'AA(idn)'

- Bond programme I/Trance II series A 2015 and series B 2017 upgraded to 'AA(idn)'

- Bond programme I/Trance III series A 2016 and series B 2018 upgraded to 'AA(idn)'

- Bond programme II in the amount of IDR 4tn upgraded to 'AA(idn)'

- Bond programme II/Trance I series A 2016 and series B 2018 upgraded to 'AA(idn)'

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