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Fitch Affirms National Ratings on Permata, PTBC and ANZI
October 3, 2016 / 10:16 AM / a year ago

Fitch Affirms National Ratings on Permata, PTBC and ANZI

(The following statement was released by the rating agency) JAKARTA, October 03 (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 National Long-Term 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 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 eighth-largest bank by assets in Indonesia, is 44.56% owned by Standard Chartered Bank (SCB, A+/Negative). PTBC is 99% owned by Commonwealth Bank of Australia (CBA, AA-/Stable) and ANZI is 99% owned by Australia and New Zealand Banking Group Limited (ANZ, AA-/Stable). 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 (operational, risk management, and key personnel), shared names, and the parents’ majority ownership and sizeable ability to provide support in times of need. Weak operating conditions, characterised by slower economic growth and consumer spending, and protracted weakness in commodity prices, have resulted in significant pressure on the banks’ asset quality. The NPL ratios of Permata, PTBC and ANZI of 4.7%, 3.4% and 6.4%, respectively at 1H16, (2015: 2.8%, 3.5% and 4.0%), were higher than the industry average of 3.1%. The deterioration in asset quality was evident across all industries, including from exposure to commodity-related sectors. The banks’ “special-mention” loan (SML) ratios of 14.5% for Permata, 7.8% for PTBC and 8.7% for ANZI (2015: 12.6%, 5.1% and 8.2%), were also higher than the industry average of 5.3%. The banks’ high SML ratios highlight the risk of a further increase in NPL ratios if economic conditions were to continue to deteriorate. The banks’ profitability has come under pressure from higher credit costs, averaging 6.5% of gross loans at 1H16 (2015: 3.9%) and Fitch expects weak asset quality to continue to depress earnings of the three banks into 2017. 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 2016 and 2017 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 strength 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 they are already at the highest end of 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 Financial Institution DBS Bank Tower 24th Floor, Suite 2403 Jl. Prof. Dr. Satrio Kav 3-5 Jakarta, Indonesia 12940 Iwan Wisaksana (ANZI's National Ratings) Director +62 21 2988 6807 Tomi Rustamiaji (PTBC's National Ratings) Analyst +62 21 2988 6810 Committee Chairperson Jonathan Lee Senior Director +886 2 8175 7601 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. 15 Jul 2016) here National Scale Ratings Criteria (pub. 30 Oct 2013) here Additional Disclosures Solicitation Status here Endorsement Policy here ail=31 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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