February 13, 2014 / 4:31 AM / 4 years ago

Fitch: Indonesian Banks Resilient Against Financial Volatility

(The following statement was released by the rating agency) JAKARTA/SINGAPORE, February 12 (Fitch) Major Indonesian banks' core profitability should remain healthy this year, following a solid financial performance in 2013, says Fitch Ratings. Strong margins and high core capitalisation insulate the banks against potentially heightened financial volatility and the risk of a macroeconomic shock. The economy remains somewhat vulnerable to external events, though local markets have performed relatively well since the onset of Fed tapering. External balances continue to improve gradually, helped by policy tightening - as illustrated by the recent shift in the trade balance into a surplus. In light of this adjustment process, we expect GDP growth to slow to 5.3%, from 5.8% in 2013. Against this backdrop, we expect NPLs to rise from their historical lows of around 2% in 2013. Key risks stem from rising interest rates and the adverse effects of weaker commodity prices and more challenging operating conditions. However, problem assets at major Indonesian banks should remain largely manageable, supported by the pro-active moves by some banks - including heightened vigilance of vulnerable borrowers, and restructuring solutions for viable businesses. The potential increase in banking stress should be comfortably buffered by robust interest margins and profitability. Both of these remain among the highest in Asia, and should limit the risk of any capital impairment. Indonesia's banking system booked strong profitability in 2013 with ROA at around 3%, despite a slight dip in net interest margin. Notwithstanding a modest increase in pressure, we still expect Indonesian banks to maintain higher profitability than most other banking systems in the region, as they still have a wide margin to compensate for pressures from higher funding and credit costs. This was also confirmed by our stress tests of rated banks in November 2013. Indonesian banks' capital position has remained strong, with the Tier 1 capital ratio improving slightly to 16.99% in the first 11 months of 2013 (2012: 15.6%). Any prospective pressure on capital is counterbalanced by higher profit retention, lower loan growth targets and, at some banks, equity injections. Deposit competition and higher interest rates may hamper deposit-gathering efforts, and could squeeze the liquidity of smaller banks with a weaker franchise. But funding is likely to remain sourced mainly from domestic customer deposits. The loan/deposit ratio climbed to nearly 90% in 2013, but the pace should ease somewhat as loan growth is likely to moderate to around 15% in 2014, down from 20%. Since the Asian Financial Crisis of 1997-1998, major Indonesian banks have generally been selective in extending foreign-currency (FC) loans, focusing on borrowers which generate income in matching foreign currencies, with the FC loans/deposit ratio of the banking sector staying below 100%. The foreign-currency net open position exposure of the banking sector has averaged 2% of capital, well below Bank Indonesia's limit of 20%. This protects against capital impairment led by sharp depreciation of the rupiah, which has fallen by more than many other Asian currencies since mid-2013. Contacts: Julita Wikana Director +62 21 2988 6808 Iwan Wisaksana Director +62 21 2988 6807 Aninda Mitra Senior Director, Fitch Wire Tel: +65 6796 7232 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. Applicable Criteria and Related Research: 2014 Outlook: Asia-Pacific Banks here Indonesian Banks’ Stress Test 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 WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below