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Rating Action:

Moody's assigns first-time ratings of Baa2/P-2 to ICBC Indonesia

19 Nov 2014

Singapore, November 19, 2014 -- Moody's Investors Service has assigned long-term local currency deposit and long-term foreign currency issuer ratings of Baa2 to Bank ICBC Indonesia (PT).

Moody's has also assigned short-term local currency deposit and short-term foreign currency issuer ratings of Prime-2.

The assigned long-term foreign currency deposit rating is Baa3, constrained by the Indonesia's country ceiling of Baa3, while the assigned short-term foreign currency deposit rating is Prime-3.

At the same time, Moody's has assigned a bank financial strength rating (BFSR) of D, which is equivalent to a baseline credit assessment (BCA) of ba2.

All the ratings have a stable outlook.

This is the first time that Moody's assigns ratings to ICBC Indonesia, although the rating agency has long rated other parts of the ICBC group.

RATINGS RATIONALE

The Baa2 ratings reflect (1) ICBC Indonesia's bank financial strength rating (BFSR) of D, which is equivalent to a baseline credit assessment (BCA) of ba2, and (2) a three-notch uplift to an adjusted BCA of baa2, based on our assessment of high support for the bank from its parent, Industrial and Commercial Bank of China Limited (ICBC Ltd, deposits A1, BFSR/BCA C-/baa2 stable).

Our assumption of the high likelihood of parental support is based on: (1) ICBC Indonesia's important role in the parent bank's franchise in Indonesia and Asia in general, (2) ICBC Ltd's 98.6% stake in ICBC Indonesia and (3) the significant resources available with ICBC Ltd -- the largest bank in China by assets -- relative to the size of its Indonesian subsidiary.

The BFSR/BCA of D/ba2 reflect ICBC Indonesia's: (1) high capital levels, (2) healthy asset quality metrics, (3) modest funding and liquidity profiles relative to its peers, and (4) weaker profitability profile when compared to its domestic peers.

The bank's high capital levels, with a core Tier 1 ratio of 13.6% at end-Q2 2014, is a key credit strength. Despite its rapidly growing loan book and relatively weak internal capital generation, ICBC Indonesia has generally maintained a Tier 1 ratio well above 10% due to periodic capital injections from its parent to proactively support its growth. ICBC Ltd has provided four capital injections since acquiring a majority stake in 2007. We see these injections as part of the parent's ongoing support, and hence factor the latter into ICBC Indonesia's BCA. Moody's expects the bank to maintain a similarly robust capital ratio in the future.

At end-June 2014, its reported non-performing loans (NPLs) ratio stood at 0.39%, and its coverage, as measured by the ratio of loan-loss reserve plus shareholders' equity to problem loans, stood at 2.61%. On both these metrics, ICBC Indonesia compares very well with other rated Indonesian banks. At the same time, our evaluation of its asset quality also factors in its high credit concentration as well as its relatively unseasoned loan book.

Moody's considers the bank to have a modest funding profile -- when compared to similarly rated peers -- on account of its relatively high dependence on wholesale sources of funding and its high depositor concentration. However, some of these weaknesses are mitigated by ongoing funding support from its parent. At end-June 2014, around 10% of ICBC Indonesia's funding came from its parent. In addition, its association with a very large banking group should significantly lower the risk of depositor flight during periods of systemic stress.

Indonesia is a strategic market for ICBC, and this is a key reason for factoring in a high probability of support from the parent to ICBC Indonesia. Frequent capital injections, non-equity funding support, and the assignment of senior managers from the ICBC group to manage ICBC Indonesia constitute evidence of the subsdidiary's importance. The bank's adjusted BCA is at the level of the parent's BCA of baa2. Further, the bank's long-term ratings are at the sovereign ceilings for Indonesia and thus, the ratings are unlikely to receive a further upgrade unless: (1) the parent's BCA is revised upwards and (2) the Indonesia's sovereign rating and the corresponding ceilings are upgraded.

ICBC Indonesia's BCA could be raised if: (1) the bank's loss buffers increase substantially, in particular, if its core capital and/or reserve coverage ratio exhibit higher increases when compared to its domestic peers, and (2) the bank exhibits a more diversified asset and deposit base, while improving its core profitability and earnings generation.

Conversely, ICBC Indonesia's BCA could be lowered if: (1) its asset quality deteriorates substantially; in particular, if it extends large loans to borrowers without increasing its loss buffers, and (2) its core capital falls significantly, in the absence of any clear contingency plans to boost its capital buffers.

The principal methodology used in this rating was Global Banks published in July 2014. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Headquartered in Jakarta, Bank ICBC Indonesia (PT) had total assets of IDR35 trillion (USD2.9 billion) at end-June 2014.

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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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.

Srikanth Vadlamani
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

Stephen Long
MD - Financial Institutions
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

Moody's assigns first-time ratings of Baa2/P-2 to ICBC Indonesia
No Related Data.
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