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Rating Action:

Moody's affirms Bank Permata's Baa3 rating, revises outlook to negative

13 Sep 2016

Singapore, September 13, 2016 -- Moody's Investors Service has today affirmed the Baa3/P-3 local and foreign currency deposit ratings of Bank Permata TBK (P.T.).

At the same time, Moody's has affirmed the bank's ba2 baseline credit assessment (BCA), ba1 adjusted BCA, and Baa3(cr)/P-3(cr) Counterparty Risk Assessment.

The outlook on the bank was revised to negative from stable.

RATINGS RATIONALE

Bank Permata's Baa3 deposit ratings incorporate the bank's ba2 BCA and a two-notch uplift to reflect Moody's expectation of continued support from its key shareholders and the government of Indonesia (Baa3 stable).

The negative outlook on the Baa3 ratings reflects the bank's deteriorating asset quality and profitability, which are posing downside risks to its BCA.

Bank Permata's asset quality has deteriorated significantly since 2H 2015 as a result of the more challenging operating environment, with its gross non-performing loan (NPL) ratio rising to 4.7% at end-June 2016 from 2.2% at end-June 2015. In addition, restructured loans (not included in NPLs) also increased significantly to 9.3% at end-June 2016 from just 0.4% at end-2014.

While the pick-up in restructured loans was led by the regulatory relaxation of loan restructuring since 2015, it also reflects the increasing asset quality issues in the bank's wholesale loan portfolio, stemming from borrowers affected by slow domestic consumption and weak commodity prices.

The asset risk faced by the bank is further exacerbated by the rapid credit growth during 2010-2014, and the impact of the moderating economy on borrowers as loans extended during that period begin to season.

As a result of its weakened asset quality, total credit costs rose to 187% of pre-provision income at end-June 2016, from 89% at end-2015 and 40% at end-2014. The bank has experienced three consecutive quarters of net losses as a result of the elevated credit costs.

The bank's reported Common Equity Tier 1 ratio improved to 14.9% at end-June 2016 from 10.9% at end-2015 as a result of a capital infusion by its existing shareholders through a IDR 5.5 trillion (approximately USD410 million) rights issue completed in June 2016.

The company's management has guided that asset quality challenges will persist for the remainder of 2016, and that credit costs will continue to trend above historical levels as the bank addresses these issues in 2016.

Although core profitability remains fairly robust, supported by stable net interest income and fee income, its ability to generate sufficient profitability and replenish its capital will be substantially impaired by its asset quality challenges.

Although the bank's capital levels are more in line with its domestic peers following the capital injection, its poor net profitability weighs on the sustainability of its current capital levels.

WHAT COULD CHANGE THE RATING UP/DOWN

Bank Permata's deposit ratings, adjusted BCA and Counterparty Risk (CR) assessments would be downgraded if its BCA is downgraded.

Bank Permata's BCA could be downgraded if there is a sharp increase in its NPLs and restructured loans and/or a continued decline in its core capital buffer because of high credit costs and/or rapid credit growth. An erosion of its liquidity profile will also be negative for the BCA.

The bank's deposit ratings would be affected if there is a change in its major shareholders that creates uncertainty over affiliate support, such that its deposit ratings are likely to be lowered; or Indonesia's sovereign rating is downgraded.

Bank Permata's Baa3 deposit ratings are unlikely to be upgraded, given the negative outlook. However, the outlook could return to stable if the downside risks on its BCA moderate.

The downside risks on its ba2 BCA could moderate if its asset quality begins to stabilize through a slowdown in NPL and restructured loan formation rates; if credit costs begin to decline as a percentage of pre-provision income; and if its capital levels improve.

The principal methodology used in these ratings was Banks published in January 2016. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.

Headquartered in Jakarta, Bank Permata TBK (P.T.) reported total assets of IDR181.5 trillion ($13.7 billion) at end-June 2016.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Simon Chen
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Gene Fang
Associate Managing Director
Financial Institutions Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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