April 3, 2017 / 3:05 AM / 8 months ago

Fitch Rates Bank Lampung's Senior Bond 'A(idn)'

(The following statement was released by the rating agency) JAKARTA, April 02 (Fitch) Fitch Ratings Indonesia has assigned Indonesia-based PT. Bank Pembangunan Daerah Lampung's (Bank Lampung, A(idn)/Stable) proposed senior unsecured bonds IV/2017 a National Long-Term Rating of 'A(idn)'. The bank plans to issue up to IDR750 billion of bonds, which will have a maturity of up to five years. The proceeds will be used to support Bank Lampung's business growth. 'A' National Ratings denote expectations of low default risk relative to other issuers or obligations in the same country. However, changes in circumstances or economic conditions may affect the capacity for timely repayment to a greater degree than is the case for financial commitments denoted by a higher rated category. KEY RATING DRIVERS The bonds are rated at the same level as Bank Lampung's National Long-Term Rating. This is because they will constitute direct, unsubordinated and senior unsecured obligations of Bank Lampung and rank equally with its other unsecured and unsubordinated obligations. Bank Lampung's National Long-Term Rating is support-driven and reflects Fitch's view that as a regional development bank, it plays an important role in supporting economic growth in Lampung province. Based on its regional significance, Fitch expects potential, albeit limited, extraordinary support from the central government due to its lower systemic importance compared with other large banks in Indonesia. RATING SENSITIVITIES Any changes in the bank's National Rating would affect its issue rating. Bank Lampung's National Rating may be upgraded if Fitch assesses the bank to be of greater strategic importance to the local economy and of higher systemic importance. This would be characterised by increasing market share in loans and deposits nationally and a more integral role in supporting regional economic development. However, in Fitch's view, it is unlikely that the bank will be able to close the gap with larger banks in the short to medium term. The ratings may also be upgraded if Fitch assesses the bank's standalone credit profile to be sufficiently strong to underpin the ratings, rather than rely on potential sovereign support. Such a scenario would require the bank to successfully close the gap with its larger Indonesian peers in terms of size of operations and assets. In particular, improvement in the standards of governance and risk management, while maintaining sound asset quality, high core capitalisation and healthy profitability with a predominantly low-cost funding base, could see the bank's standalone financial profile have a greater influence on its National Rating. However, Fitch views this as unlikely to happen in the near to medium term. Downward rating pressure may arise from weakened central government ability or propensity to provide extraordinary financial support to Bank Lampung, with the latter likely to stem from the bank becoming less important in supporting Lampung's regional economy. However, Fitch believes this to be a remote prospect in the near to medium term. Deterioration in the bank's' standalone financial profiles is unlikely to impact its National Rating given the support-driven nature of the rating unless the deterioration results in the central government's diminished propensity to support the bank. Contact: Primary Analyst Priscilla Tjitra Associate Director +62 21 2988 6809 PT Fitch Ratings Indonesia DBS Bank Tower 24th Floor, Suite 2403 Jl. Prof. Dr. Satrio Kav 3-5 Jakarta, Indonesia 12940 Committee Chairperson Jonathan Cornish Managing Director +852 2263 9901 Date of Relevant Rating Committee: 25 January 2017 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Global Bank Rating Criteria (pub. 25 Nov 2016) here National Scale Ratings Criteria -- Effective Oct. 30, 2013 - March 7, 2017 (pub. 30 Oct 2013) here Additional Disclosures Solicitation Status here 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 <a href="https://www.fitchratings.com">WWW.FITCHRATINGS.COM.. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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