S&P raises ratings on Bank Mandiri, Bank CIMB Niaga, Bank Internasional Indonesia

HONG KONG: Standard & Poor's Ratings Services had on Friday, March 12 raised its long-term counterparty ratings on three Indonesian banks.

The outlook on each of these ratings is stable. These banks are PT Bank Mandiri (Persero), PT Bank CIMB Niaga Tbk. (CIMB Niaga--unsolicited rating), and PT Bank Internasional Indonesia Tbk. (BII).

As a result, all these banks are now rated 'BB/Stable/B' compared with 'BB-/Positive/B' earlier.

The ratings on the banks were raised following the similar action on the sovereign credit rating on Indonesia (foreign currency BB/Positive/B; local currency BB+/Positive/B; ASEAN scale axBBB+/--/axA-2) on Friday.

“We also affirmed the ratings on PT Bank Danamon Indonesia Tbk. (BB-/Positive/B). There is no change in the rating on PT Bank Negara Indonesia (Persero) Tbk. (BB-/Stable/B),” it said.

The rationales for the various rating actions--varying somewhat across the banks-- are given below.

Standard & Poor's does not rate any Indonesian bank above the sovereign foreign currency rating because of the direct and indirect influence that the sovereign, if in distress, would have on an Indonesian bank's operations, including the bank's ability to service foreign currency obligations.

Below is the statement from Standard & Poor's Ratings Services:

PT BANK MANDIRI (PERSERO) (BB/Stable/B)

We raised the rating on Bank Mandiri to reflect a similar change in the foreign currency sovereign rating on Indonesia.

This is because our earlier rating on Bank Mandiri did not incorporate our expectation of extraordinary government support to be available to the bank.

In our opinion, the government will support Bank Mandiri because it is the largest bank in the country with a market share of 16.1% in customer deposits and majority government ownership of about 67%.

We could further raise the rating on Bank Mandiri if its asset quality and earnings improve, and there is a similar rating action on the foreign currency rating on Indonesia.

We may lower the rating if the bank's asset quality deteriorates or the foreign currency sovereign rating on Indonesia is lowered.

PT BANK INTERNASIONAL INDONESIA TBK. (BB/Stable/B)

We raised the rating on BII to reflect a similar change in the foreign currency sovereign rating on Indonesia. This is because our earlier rating on BII did not fully incorporate our expectation of group support from MALAYAN BANKING BHD []. (Maybank; A-/Stable/A-2).

Now that the sovereign foreign currency rating on Indonesia has been raised, we fully factor our expectation of group support into the rating.

We expect BII to continue to be "strategically important" to Maybank.

We could upgrade BII if: (1) the foreign currency rating on Indonesia is raised; and (2) the bank's market position and profitability improve, while capitalization remains sound and asset quality remains manageable, or we expect BII to become even more strategically important to Maybank.

We could lower the rating if there is a significant deterioration in the bank's asset quality, profitability, or liquidity. BII could also be downgraded if its strategic importance to Maybank diminishes or the foreign currency sovereign rating on Indonesia is lowered.

PT BANK CIMB NIAGA TBK. (Unsolicited Rating) (BB/Stable/B)

We raised the rating on CIMB Niaga to reflect a similar change in the foreign currency sovereign rating on Indonesia.

This is because our earlier rating on CIMB Niaga did not fully incorporate our expectation of group support from CIMB group, which is dominated by CIMB Bank Bhd. (BBB+/Stable/A-2).

Now that the sovereign foreign currency rating on Indonesia has been raised, we fully factor our expectation of group support into the rating. We expect CIMB Niaga to continue to be "strategically important" to CIMB.

The bank could be upgraded if: (1) the foreign currency rating on Indonesia is raised; and (2) the bank successfully optimizes synergy after the earlier merger and demonstrates improvement in asset quality, while maintaining an adequate profitability, or we expect BII to become even more strategically important to CIMB group.

We could lower the rating if there is a significant deterioration in the bank's asset quality, profitability, or liquidity. CIMB Niaga could be downgraded if the foreign currency sovereign rating on Indonesia is lowered or the bank's strategic importance to CIMB group diminishes.

PT BANK DANAMON INDONESIA TBK. (BB-/Positive/B)

We affirmed the rating on Bank Danamon. The positive outlook reflects our expectation that the bank's financial profile, especially profitability and capitalization, will continue to compare well with its regional peers' in the 'BB' rating category.

However, the bank's credit portfolio continues to be constrained by the high-risk and developing economic environment, and its tightened liquidity profile remains constrained by a fairly high loan-to-deposit ratio.

The ratings could be raised if the bank demonstrates an improvement in asset quality and liquidity profile, while maintaining sound capitalization and profitability.

The outlook could be revised to stable if: (1) the bank's liquidity profile or asset quality does not improve over the next 12 months; or (2) its capitalization or profitability deteriorates.