April 21, 2017 / 9:17 AM / 9 months ago

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

(The following statement was released by the rating agency) SINGAPORE/JAKARTA, April 21 (Fitch) Fitch Ratings Indonesia has affirmed the National Ratings of Indonesia-based PT Bank Central Asia Tbk (BCA), PT Bank Danamon Indonesia Tbk (Danamon) and BCA's subsidiary PT BCA Finance (BCAF). At the same time, Fitch has affirmed the Issuer Default Ratings (IDRs) of BCA, Danamon and PT Bank Pan Indonesia Tbk (Panin). The rating Outlooks are Stable. 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, VIABILITY RATINGS AND NATIONAL RATINGS BCA's IDRs, Viability Rating (VR) and National Ratings reflect Fitch's view that its strong credit fundamentals will continue to be underpinned by its business model, which focuses on low-risk transactional banking. The fundamentals will remain comparable with higher-rated peers' in emerging markets. However, the credit profile also reflects BCA's operating environment, where the developing financial market is more susceptible to systemic liquidity and funding risk than in developed markets. BCA has demonstrated resilient and strong performance during 2016's challenging operating conditions, with improved profitability and sound asset quality. It benefited from high interest rates thanks to its large low-cost current and savings deposits (CASA) base. BCA's common equity Tier-1 capital ratio remains sound at 21.3% at end-2016, supported by strong internal capital generation. Danamon's IDRs, VR and National Ratings reflect its satisfactory company profile, its solid consumer finance franchise and benefits from its ultimate parent, Temasek Holdings Pte Ltd, which is wholly-owned by the Singapore sovereign (AAA/Stable). Its relatively weaker funding profile and internal capital generation are counterbalanced by a strong capital profile (common equity Tier-1 capital ratio at 20.1% at end-2016). The ratings also consider its moderate asset quality, as reflected in its non-performing loan ratio of 3.1% at end-2016, in line with the industry average of 2.9%. Funding and liquidity weaknesses are highlighted by the bank's reliance on high-cost non-CASA deposits and above-peer loan-to-deposit ratios. Panin's IDRs and VR reflect its modest earnings that are lower than those of higher-rated Indonesian banks, although this is counterbalanced by improved capital and satisfactory asset quality. Panin's core capital is strong, with a common equity Tier-1 ratio of 18.5% at end-2016. Despite a weaker operating environment, the bank's profitability was resilient in 2016 thanks to manageable asset quality with lower-than-peers credit costs. Our assessment also captures the bank's domestic franchise as a family-controlled mid-sized bank. BCAF's ratings reflect Fitch's expectation of a strong probability of support from its parent in times of need. The ratings also incorporate Fitch's assessment of BCAF's role as a core subsidiary supporting BCA's business expansion in Indonesia's consumer financing market. BCAF's important role in managing BCA's entire portfolio of car loans makes it integral to BCA's consumer business chain. The car loan portfolio constituted a significant 37% of BCA's consumer loans at end-2016. BCA's support is manifested in the common brand name it shares with BCAF, the provision of funding, and operational alignment, such as utilisation of BCA's branch network. Business referrals from BCA also remain significant at around 40% of BCAF's new financing in 2016. SUPPORT RATINGS and SUPPORT RATING FLOORS The Support Ratings and Support Rating Floors for BCA, Danamon and Panin reflect Fitch's view of a moderate probability of extraordinary state support being made available, if needed. Fitch believes these three banks are systemically important to Indonesia as BCA, Danamon and Panin are the third-, eighth- and seventh-largest banks in Indonesia by assets, respectively. BCA's higher Support Rating Floor reflects Fitch's view of its higher systemic importance as the transactional banking leader in Indonesia, with much higher market share of industry assets (10.1% at end-2016) relative to Danamon and Panin (both around 3.0%). ISSUE RATINGS BCAF's senior bonds are rated at the same level as BCAF's National Long- and Short-Term Ratings in accordance with Fitch criteria. RATING SENSITIVITIES IDRs, VIABILITY RATINGS AND NATIONAL RATINGS BCA's ratings are sensitive to a stronger operating environment. Deeper and less volatile financial markets, sustained improvements in the economy or a higher sovereign rating could trigger a VR upgrade if they further strengthened the bank's financial profile. BCA's ratings would also be sensitive to a considerable change in its business model, resulting in greater appetite for risk. However, Fitch believes this scenario is unlikely in the near term because of management's prudent approach, especially with regards to asset quality, core capitalisation and liquidity. Danamon's ratings are sensitive to deterioration in its financial profile, including asset quality and profitability. Rating upside for Danamon may result from material improvement in its franchise, leading to improved funding and liquidity metrics while maintaining sound capitalisation similar to that of higher-rated peers. 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 Panin's 'BB' IDR is at the same level as its Support Rating Floor, 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 profitability would be positive for its VR. Any significant dilution in BCA's ownership or perceived weakening of support for its subsidiary would exert downward pressure on the ratings on BCAF, including the possibility of multi-notch downgrades. However, Fitch sees this prospect as remote in the foreseeable future, given BCAF's core role in BCA's consumer business strategy. There is no rating upside as the rating is already at the highest point on the scale. SUPPORT RATINGS and SUPPORT RATING FLOORS A change in Fitch's view of the government's ability and willingness to provide extraordinary support would affect these banks' Support Ratings and Support Rating Floors. Fitch will review the potential impact on SRs and SRFs as more key details and supporting regulations for the Financial System Crisis Prevention and Mitigation Law become available during 2017. ISSUE RATINGS Any changes in BCAF's National Long- and Short-Term Ratings would affect the issue ratings. FULL LIST OF RATING ACTIONS 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 affirmed at 'F1+(idn)' Viability Rating affirmed at 'bbb-' Support Rating affirmed at '3' Support Rating Floor affirmed at 'BB+' 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 affirmed at 'F1+(idn)' Viability Rating affirmed at 'bb+' Support Rating affirmed at '3' Support Rating Floor affirmed at 'BB' Panin: Long-Term IDR affirmed at 'BB'; Outlook Stable Short-Term IDR affirmed at 'B' Viability Rating affirmed at 'bb' Support Rating affirmed at '3' Support Rating Floor affirmed at 'BB' BCAF: National Long-Term Rating affirmed at 'AAA(idn)'; Outlook Stable National Short-Term Rating affirmed at 'F1+(idn)' Rupiah senior debt issuance affirmed at 'AAA(idn)' and 'F1+(idn)' Contacts: Primary Analysts Ambreesh Srivastava (International Ratings) Senior Director +65 67967218 Fitch Ratings Singapore Pte Ltd One Raffles Quay, South Tower #22-11 Singapore 048583 Iwan Wisaksana (BCA's National Ratings) Director +62 21 2988 6807 PT Fitch Ratings Indonesia Financial Institution DBS Bank Tower 24th Floor, Suite 2403 Jl. Prof. Dr. Satrio Kav 3-5 Jakarta, Indonesia 12940 Gary Hanniffy, CFA (Danamon's National Ratings) Director +62 21 2988 6808 Tomi Rustamiaji (BCAF's National Ratings) Analyst +62 21 2988 6810 Secondary Analysts Iwan Wisaksana (BCA's International Ratings) Director +62 21 2988 6807 Gary Hanniffy, CFA (Danamon's International Ratings) Director +62 21 2988 6808 Priscilla Tjitra (Panin's International Ratings) Associate Director +62 21 2988 6809 Committee Chairperson Sabine Bauer Senior Director +852 2263 9966 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com. Note to editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(idn)' for National ratings in Indonesia. Specific letter grades are not therefore internationally comparable. Additional information is available on www.fitchratings.com Applicable Criteria Global Bank Rating Criteria (pub. 25 Nov 2016) here Global Non-Bank Financial Institutions Rating Criteria (pub. 10 Mar 2017) here National Scale Ratings Criteria (pub. 07 Mar 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. 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