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Fitch Assigns Lembaga Penjamin Simpanan First-Time 'AAA(idn)' Rating; Outlook Stable
May 8, 2017 / 10:36 AM / 7 months ago

Fitch Assigns Lembaga Penjamin Simpanan First-Time 'AAA(idn)' Rating; Outlook Stable

(The following statement was released by the rating agency) JAKARTA, May 08 (Fitch) Fitch Ratings Indonesia has assigned Lembaga Penjamin Simpanan (LPS) a National Long-Term Rating of 'AAA(idn)' with Stable Outlook. 'AAA(idn)' National Ratings denote the highest rating assigned by the agency in its National Rating scale for Indonesia. 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. LPS's ratings reflect its high strategic importance in safeguarding stability and confidence in Indonesia's financial system, as well as a strong legal framework for government support in the form of capital and potential liquidity assistance. Therefore, Fitch classifies LPS as a public-sector entity that is credit linked to and equalised with the Indonesia sovereign. KEY RATING DRIVERS Legal Status "Stronger": LPS was established by the government as an independent entity with authorised capital from the Ministry of Finance (MoF). Legally, LPS can only be liquidated by revocation of the LPS law of 2004 and privatisation is not possible. Law Number 24 of 2004 also contains legal frameworks for the government to cover LPS's capital deficit. Fitch believes such frameworks indicate a strong commitment from the government to ensure LPS's going concern. Control "Mid-Range": LPS's role is clearly defined and the company must operate in accordance with the relevant LPS laws. LPS is directly responsible only to the Indonesian president, although other government stakeholders also oversee the company's strategic direction. This is reflected in the composition of LPS's board of commissioners, half of which are representatives of the MoF, Financial Services Authority and Bank Indonesia. Strategic Importance "Stronger": In conjunction with other government agencies, LPS plays an irreplaceable policy role as the sole operator of the deposit insurance scheme and the execution platform of ensuring the orderly resolution of systemic and non-systemic failed banks. Fitch believes a default of LPS could trigger detrimental consequences to the public confidence of Indonesia's financial system and would lead to a systemic risk. Hence, this attribute has been given a greater weight towards the assessment of LPS's rating. Integration "Mid-Range": LPS's budget is not consolidated into the MoF and the company does not receive ongoing government funding. However, under the LPS Law of 2004, LPS is stipulated to have a minimum capital of IDR4 trillion, below which the government is obliged to recapitalise LPS from state assets, subject to House of Representatives approval. Moreover, LPS may obtain government loans under certain criteria for liquidity needs. High Liquidity: LPS has high liquidity, as it can only invest in Bank Indonesia Certificates (SBI) and government securities (SBN). Around 2.3% of LPS's total assets at end-2016 were held as cash and 96.9% were invested in government securities; some of this relates to the investment of insurance reserves. Moreover, LPS does not have any financial debt. RATING SENSITIVITIES A weakening of LPS's strategic importance or support may trigger a downgrade. Also, a significant reduction in insurance reserves without authorisation by the government to increase insurance premiums could result in a downgrade, as it would indicate a potential lack of support in maintaining a sound financial profile. Contact: Primary Analyst Iwan Wisaksana Director +62 21 2988 6807 PT Fitch Ratings Indonesia DBS Bank Tower, 24th Floor, Suite 2403 JI. Prof. Dr. Satrio Kav. 3-5 Jakarta 12940 Indonesia Committee Chairperson Vladmir Redkin Senior Director +7 495 956 2405 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 Indonesia. Specific letter grades are not therefore internationally comparable. Additional information is available on Applicable Criteria International Local and Regional Governments Rating Criteria - Outside the United States (pub. 18 Apr 2016) here National Scale Ratings Criteria (pub. 07 Mar 2017) here Rating of Public-Sector Entities – Outside the United States (pub. 22 Feb 2016) here Additional Disclosures 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. 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. 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