September 29, 2017 / 8:11 AM / in 10 months

Fitch Affirms Ratings on Permata, PTBC and ANZI; Outlooks Stable

(The following statement was released by the rating agency) JAKARTA, September 29 (Fitch) Fitch Ratings Indonesia has affirmed the National Long-Term Ratings of three foreign-owned Indonesian banks: PT Bank Permata Tbk (Permata), PT Bank Commonwealth (PTBC), and PT Bank ANZ Indonesia (ANZI) at 'AAA(idn)'. A full list of rating actions is at the end of this rating action commentary. The affirmation of the ratings reflects Fitch's view that support from and linkages with the banks' parents remain unchanged. 'AAA' National Ratings denote the highest rating 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. '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 National Ratings are driven by Fitch's view that the banks' higher-rated parents have high ability and propensity to provide timely support to their subsidiaries, should it be needed. Fitch believes that the banks are strategically important subsidiaries of the parents. Permata, the 11th-largest bank by assets in Indonesia, is 44.56% owned by Standard Chartered Bank (SCB, A+/a/Stable). PTBC is 99% owned by Commonwealth Bank of Australia (CBA, AA-/aa-/Stable) and ANZI is 99% owned by Australia and New Zealand Banking Group Limited (ANZ, AA-/aa-/Stable). In Fitch's opinion, any required extraordinary support would be immaterial relative to the ability of the parents to provide it, as each subsidiary accounted for less than 2% of its parent's consolidated assets at end-1H17. In Permata's case, Fitch's view stems from SCB's significant ownership in the subsidiary, appointment of key personnel, the subsidiary's ability to benefit from the parent's risk management and business best practices, and the subsidiary's role in strengthening the parent's presence in a wider range of segments in the Indonesian market. Fitch's view for ANZI and PTBC is based on the large potential for damage to the parents' reputations if they were to default, the strong synergies between the parents and subsidiaries manifested by alignment in key areas (operations, risk management, and key personnel), shared names, and the parents' majority ownership. The banks' asset quality remains under pressure as reflected in the NPL ratios of Permata, PTBC and ANZI of 4.7%, 3.9% and 5.9%, respectively at 1H17 (2016: 9.0%, 3.6% and 6.3%), which were significantly higher than the industry average of 3.0%. The banks' "special-mention" loan (SML) ratios of 12.7% for Permata, 5.1% for PTBC and 5.5% for ANZI (2016: 10.9%, 8.0% and 8.2%), were also in line with, or above, the industry average of 5.6%. The banks' high SML ratios highlight the risk of a further increase in NPL ratios if economic conditions were to deteriorate. The banks' profitability recovered during 1H17, following a weak performance in 2016, as credit costs fell significantly on slower NPL formation. Their average credit costs were 2.5% of gross loans in 1H17, compared with 8.2% in 2016. However, in Fitch's opinion, tough competition with larger banks to acquire deposits, particularly lower-cost demand and savings deposits, will continue to challenge the banks' profitability growth. Capitalisation is likely to remain satisfactory for the three banks throughout 2017 and 2018 as Fitch expects loan growth to remain subdued in the near to medium term. Fitch also believes that capital support from the parents will be forthcoming in case of need. RATING SENSITIVITIES Downward rating pressure on the National Ratings may arise from a perceived weakening of support from the banks' parents, including from major changes to ownership. A significant weakening in their parents' financial strengths could also negatively affect the ratings, although Fitch believes this to be a remote prospect in the near to medium term. There is no rating upside as the ratings are already at the highest point on the National Ratings scale. The rating actions are as follows: Permata - National Long-Term Rating affirmed at 'AAA(idn)'; Outlook Stable - National Short-Term Rating affirmed at 'F1+(idn)' PTBC - National Long-Term Rating affirmed at 'AAA(idn)'; Outlook Stable - National Short-Term Rating affirmed at 'F1+(idn)' ANZI - National Long-Term Rating affirmed at 'AAA(idn)'; Outlook Stable - National Short-Term Rating affirmed at 'F1+(idn)' Contact: Primary Analyst Gary Hanniffy, CFA (Permata's National Ratings) Director +62 21 2988 6808 PT Fitch Ratings Indonesia DBS Bank Tower 24th Floor, Suite 2403 Jl. Prof. Dr. Satrio Kav 3-5 Jakarta, Indonesia 12940 Tomi Rustamiaji (PTBC's National Ratings) Analyst +62 21 2988 6810 Syaiful Adrian (ANZI's National Ratings) Associate Director +62 21 2988 8610 Committee Chairperson Jonathan Lee Senior Director +886 2 8175 7601 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: 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 Indonesiad. Specific letter grades are not therefore internationally comparable. 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