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Rating Action:

Moody's concludes review on three Indonesian banks; assigns Counterparty Risk Assessment to ten banks

09 Jun 2015

NOTE: On June 10, 2015, the press release was corrected as follows: The fifth title under the RATINGS RATIONALE section was changed from “SPECIFIC ANALYTICAL FACTORS RELATED TO THE FIVE THAI BANKS” to “SPECIFIC ANALYTICAL FACTORS RELATED TO THE THREE INDONESIAN BANKS”. Revised release follows.

NOTE: On August 14, 2015, the press release was corrected as follows: The wording “and foreign currency issuer ratings” in the second bullet point in the list of ratings for Bank Rakyat Indonesia (P.T.) (BRI) was removed. Revised release follows.

Singapore, June 09, 2015 -- Moody's Investors Service has concluded its rating reviews on three Indonesian banks and assigned counterparty risk assessments (CR Assessments) to 10 banks in the same system.

Moody's reviews on the ratings of Bank Danamon, Bank CIMB Niaga and Bank Mandiri were initiated on 17 March 2015 (see press release at http://www.moodys.com/viewresearchdoc.aspx?docid=PR_321005). following the implementation of Moody's new bank rating methodology (see "Banks", published on 16 March 2015).

Moody's has affirmed the Baa3/P-3 long-term and short-term deposit ratings of Danamon, Mandiri and Niaga. The outlook on all the long-term deposit and issuer ratings for these banks is stable.

At the same time, Danamon's baseline credit assessment (BCA) and adjusted BCA were upgraded to ba1 and baa3 from ba2 and ba1, respectively.

Mandiri's BCA and adjusted BCA were upgraded to baa3 from ba1 while Niaga's adjusted BCA was upgraded to baa3 from from ba1.

Furthermore, Moody's has assigned Counterparty Risk Assessments (CR Assessments) to all rated Indonesian banks as follows: (1) Bank Mandiri (P.T.) -- Baa2(cr)/P-2(cr); (2) Bank Rakyat Indonesia (P.T.) (BRI) -- Baa2(cr)/P-2(cr); (3) Bank Central Asia Tbk (P.T.) (BCA) -- Baa2(cr)/P-2(cr); (4) Bank Negara Indonesia Tbk (P.T.) (BNI) -- Baa3(cr)/P-3(cr); (5) PT Bank CIMB Niaga Tbk -- Baa2(cr)/P-2(cr); (6) Bank Danamon Indonesia Tbk (P.T.) -- Baa2(cr)/P-2(cr); (7) PT Pan Indonesia Bank Tbk (Panin) -- Baa3(cr)/P-3(cr); (8) Bank Permata Tbk (P.T.)(Permata) -- Baa3(cr)/P-3(cr); (9) Bank Tabungan Negara (P.T.) (BTN) -- Baa3(cr)/P-3(cr); (10) Bank ICBC Indonesia (P.T.) -- Baa1(cr)/P-2(cr).

A full ratings list for these Indonesian banks can be found at the end of this press release.

Today's actions reflect the new aspects of Moody's bank rating methodology published on 16 March 2015 (see "Banks," http://www.moodys.com/viewresearchdoc.aspx?docid=PR_320662).

RATINGS RATIONALE

The new bank rating methodology includes a number of elements that Moody's has developed to help accurately predict bank failures and determine how each creditor class is likely to be treated when a bank fails and enters resolution. These new elements capture insights gained from the crisis and the fundamental shift in the banking industry and its regulation.

In terms of the application of Moody's new methodology to Indonesian banks, Moody's rating actions reflect the following considerations: 1) Moody's view of Indonesia's "Moderate" macro profile and 2) the banks' strong core financial ratios

1) Indonesia's "Moderate" macro profile

The rated Indonesian banks operate primarily in the domestic market, and benefit from the Indonesian economy's large scale and diversity of the economy, strong domestic demand base and robust growth potential. Credit growth in the banking system has been rapid, but within the context of strong trend economic growth and low penetration of banking services in the economy. Funding conditions are tightening for banks, but they remain primarily deposit funded.

At the same time, institutional strength is assessed at low, with uneven progress on both the rule of law and control of corruption. Indonesia also has a moderate degree of external vulnerability, driven by a relatively wide current account deficit.

2) The banks' strong core financial ratios

The average BCA of Moody's-rated Indonesian banks is ba1, and takes into account the banks' strong core financial metrics, including high capital profitability and loan loss coverage levels.

The BCAs also incorporate downside risks to the banks' asset quality in a challenging economic environment.

(See below for outlines of the analytical considerations for the individual banks covered in this press release.)

ASSIGNMENT OF CR ASSESSMENTS

Moody's has also assigned CR assessments to all the 10 rated Indonesian banks

CR assessments are opinions of how counterparty obligations are likely to be treated if a bank fails, and are distinct from debt and deposit ratings in that they: (1) consider only the risk of default rather than expected loss; and (2) apply to counterparty obligations and contractual commitments rather than debt or deposit instruments.

A CR assessment is an opinion of the counterparty risk related to a bank's covered bonds, contractual performance obligations (servicing), derivatives (e.g., swaps), letters of credit, guarantees and liquidity facilities.

CR Assessments take into account the issuer's standalone strength, as well as the likelihood of affiliate and government support in the event of need; reflecting the anticipated seniority of these obligations in the liabilities hierarchy.

CR Assessments also incorporate other steps authorities can take to preserve the key operations of a bank should it enter a resolution.

THE CR ASSESMENT OF ICBC INDONESIA IS POSITIONED AT Baa1(cr)

The CR Assessment of ICBC Indonesia, prior to government support, is positioned one notch above the Adjusted BCA of baa2, and therefore above senior unsecured and deposit ratings, reflecting our view that its probability of default is lower than that of senior unsecured debt and deposits. We believe senior obligations represented by the CRA will be more likely preserved in order to limit contagion, minimize losses and avoid disruption of critical functions.

The CR Assessment does not benefit from any systemic support as it already above the Baa3 sovereign rating of Indonesia.

THE CR ASSESMENT OF BCA, BRI, MANDIRI, DANAMON AND NIAGA ARE POSITIONED AT Baa2(cr)

The CR Assessments of BCA, BRI, Mandiri, Danamon and Niaga, prior to government support, are positioned one notch above their Adjusted BCA of baa3, and therefore above senior unsecured and deposit ratings, reflecting our view that its probability of default is lower than that of senior unsecured debt and deposits. We believe senior obligations represented by the CRA will be more likely preserved in order to limit contagion, minimize losses and avoid disruption of critical functions.

The CR Assessments of the five banks do not benefit from any systemic support as they are already above the Baa3 sovereign rating of Indonesia.

THE CR ASSESMENT OF BNI, PERMATA, PANIN AND BTN ARE POSITIONED AT Baa3(cr)

The CR Assessments, prior to government support, of BNI and Permata are positioned at baa3 while that of Panin and BTN are positioned at ba1. These are all one notch above their respective adjusted BCAs.

The CR Assessments of BNI and Permata do not benefit from any systemic support as they are already at the same level as the Baa3 sovereign rating of Indonesia.

The CR Assessments of Panin and BTN benefit from one notch of systemic support, in line with our support assumptions on deposits and senior unsecured debt. This reflects our view that any support provided by governmental authorities to a bank which benefits senior unsecured debt or deposits is very likely to benefit operating activities and obligations reflected by the CR Assessment as well, consistent with our belief that governments are likely to maintain such operations as a going-concern in order to reduce contagion and preserve a bank's critical functions.

SPECIFIC ANALYTICAL FACTORS RELATED TO THE THREE INDONESIAN BANKS

DANAMON: AFFIRMATION OF LONG-TERM RATING AND UPGRADE OF BCA AND ADJUSTED BCA

Danamon's BCA has been upgraded to ba1 from ba2 to reflect the bank's improving credit fundamentals, particularly its well-capitalized balance sheet. The bank's liquidity and funding position is also in line with peers when adjusted for the funding requirements of the bank's auto business, which operates on a fixed-rate basis and would be better funded through longer maturity borrowings rather than short-term deposits.

At the same time, the bank's BCA also takes into account Moody's expectation that the asset quality of Indonesian banks will worsen over the next 12 -- 18 months, although this risk is lower at Danamon, given its relatively slow loan growth over the last three years.

The bank's adjusted BCA was upgraded to baa3 from ba1, following the upgrade of its BCA.

The deposit rating of the bank has been affirmed at Baa3, at the same level as the adjusted BCA and in line with the Indonesian sovereign rating. The deposit rating of the bank does not factor in any systemic support as the adjusted BCA is at the same level as the sovereign.

NIAGA: AFFIRMATION OF LONG-TERM RATING AND BCA AND UPGRADE OF ADJUSTED BCA

The affirmation of Niaga's BCA of ba2 reflects its healthy financial metrics compared to similarly rated peers. Moody's notes the significant deterioration in the bank's asset quality nonetheless, the bank has sufficient buffers in the form of high loan loss coverage, pre-provision profitability and capital levels to be able to withstand this deterioration in asset quality.

Niaga's adjusted BCA has been raised to baa3 from ba1 to better capture Moody's expectation that the bank has a very high probability of support from its parent CIMB Group Holdings Berhad (A3, RUR). Niaga is 98% owned by CIMB. It is the second biggest contributor to the group profits, accounting for 21% of the loans and 19% of the profits in 2014. In addition, Indonesia as a key growth market for the group from a medium term perspective. These factors point to the high strategic importance of Niaga to the CIMB Group.

The deposit rating of the bank has been affirmed at Baa3, at the same level as the adjusted BCA and in line with the Indonesian sovereign rating. The deposit rating of the bank does not factor in any systemic support as the adjusted BCA is at the same level as the sovereign.

MANDIRI: AFFIRMATION OF LONG-TERM RATING AND UPGRADE OF BCA AND ADJUSTED BCA

The upgrade of Mandiri's BCA to baa3 from ba1 takes into account the bank's good performance on almost all key performance metrics. Over the last two years, Mandiri has built up a strong funding profile which enabled the bank to enjoy high and sustainable net interest margin (NIM) even during periods when NIM for the system saw a sharp decline. The high NIM in turn translates to high profitability which would support the bank's robust capital levels even with healthy balance sheet growth.

In terms of asset quality, Moody's expects to see further deterioration at Mandiri than the overall system over the next 12 -- 18 months, given the bank's fairly aggressive loan growth, especially in the high-yielding segment, since 2010. Nonetheless, the bank has sufficient buffers in place to withstand this potential deterioration, in the form of high loan loss coverage, high pre-provisioning profitability and high capital levels.

The bank's adjusted BCA has been upgraded to baa3 from ba1 following the upgrade in its BCA.

The deposit rating of the bank has been affirmed at Baa3, at the same level as the adjusted BCA and in line with the Indonesian sovereign rating. The deposit rating of the bank does not factor in any systemic support as the adjusted BCA is at the same level as the sovereign.

WHAT COULD CHANGE THE RATINGS UP

DANAMON

Danamon's BCA could be raised if there are sustained improvements in the bank's financial fundamentals and operating performance, despite a more challenging operating environment in Indonesia.

An upgrade of the sovereign rating would result in an upgrade of Danamon's deposit ratings.

MANDIRI

Mandiri's BCA is now at the same level as the sovereign rating. It is very unlikely BCA to be upgraded unless the sovereign rating is upgraded as the bank's business is almost entirely linked to the Indonesian economy.

An upgrade of the sovereign rating would result in an upgrade of Bank Mandiri's deposit ratings.

NIAGA

CIMB Niaga's BCA could be raised if: (1) there are sustained improvements in the bank's financial fundamentals and operating performance, despite a more challenging operating environment in Indonesia; and (2) there is evidence that its venture into new businesses has not raised the bank's risk profile.

An upgrade of the sovereign rating would result in an upgrade of Niaga's deposit ratings.

WHAT COULD CHANGE THE RATINGS DOWN

DANAMON

The BCA could be lowered if: (1) there is a substantial deterioration in asset quality while its loss buffer substantially contracts; or (2) its profitability metrics materially decreases.

A multiple notch downgrade of the sovereign rating would result in a downgrade of the bank's deposit ratings.

MANDIRI

Moody's will consider lowering the BCA if: (1) the bank's market share of deposits substantially erodes; (2) its asset quality declines sharply; and (3) its loss-absorbing buffer deteriorates considerably, which might lead to a corresponding significant erosion of asset quality.

A downgrade of the sovereign rating would result in a downgrade of Bank Mandiri's deposit ratings as well as a lowering of its BCA.

NIAGA

The bank's BCA could face downward pressure if there is: (1) a reversal in trends for financial fundamentals and operating performance; and/or (2) a decline in its Tier 1 ratio.

Moreover, the adjusted BCA will be negatively affected if there is a change in shareholdings or other indications that create uncertainty about the level of affiliate support the bank is likely to receive.

A multiple notch downgrade of the sovereign rating would result in a downgrade of the bank's deposit ratings.

Taking into account today's announcement, the Indonesian banks' ratings are as follows:

MANDIRI

• BCA and Adjusted BCA upgraded to baa3 from ba1;

• Local and foreign currency deposit ratings affirmed at Baa3/P-3; stable outlook on long-term rating;

• CR Assessment of Baa2(cr)/P-2(cr).

BRI

• BCA and Adjusted BCA remain unchanged at baa3;

• Local and foreign currency deposit ratings remain unchanged at Baa3/P-3; stable outlook on long-term rating;

• Foreign currency senior unsecured rating remains unchanged at Baa3;

• CR Assessment of Baa2(cr)/P-2(cr).

BCA

• BCA and Adjusted BCA remain unchanged at baa3;

• Local and foreign currency deposit ratings remain unchanged at Baa3/P-3; stable outlook on long-term rating;

• Foreign currency issuer rating remain unchanged at Baa3; stable outlook;

• CR Assessment of Baa2(cr)/P-2(cr).

BNI

• BCA and Adjusted BCA remain unchanged at at ba1;

• Local and foreign currency deposit rating remain unchanged at Baa3/P-3; stable outlook on long-term rating;

• Foreign currency senior unsecured rating remains unchanged at Baa3;

• CR Assessment of Baa3(cr)/P-3(cr).

NIAGA

• BCA affirmed at ba2;

• Adjusted BCA upgraded to baa3 from ba1;

• Local currency deposit ratings confirmed at Baa3/P-3 and foreign currency deposit ratings affirmed at Baa3/P-3; stable outlook on long-term rating;

• Foreign currency issuer rating confirmed at Baa3; stable outlook;

• CR Assessment of Baa2(cr)/P-2(cr).

DANAMON

• BCA upgraded to ba1 from ba2;

• Adjusted BCA upgraded to baa3 from ba1

• Local and foreign currency deposit ratings affirmed at Baa3/P-3; stable outlook on long-term rating;

• CR Assessment of Baa2(cr)/P-2(cr).

PANIN

• BCA and Adjusted BCA remain unchanged at ba2;

• Local and foreign currency deposit ratings remain unchanged at at Baa3/P-3; stable outlook on long-term rating;

• CR Assessment of Baa3(cr)/P-3(cr).

PERMATA

• BCA and Adjusted BCA remain unchanged at ba2 and ba1 respectively;

• Local and foreign currency deposit ratings remain unchanged at at Baa3/P-3; stable outlook on long-term rating;

• CR Assessment of Baa3(cr)/P-3(cr).

BTN

• BCA and Adjusted BCA remain unchanged at ba2;

• Local and foreign currency deposit ratings remain unchanged at at Baa3/P-3; stable outlook on long-term rating;

• CR Assessment of Baa3(cr)/P-3(cr).

ICBC INDONESIA

• BCA and Adjusted BCA remain unchanged at ba2 and baa2 respectively;

• Local currency deposit ratings remain unchanged at Baa2/P-2; stable outlook on long-term rating;

• Foreign currency deposit ratings remain unchanged at Baa3/P-3; stable outlook on long-term rating;

• Foreign currency long term and short-term issue ratings remain unchanged at Baa2/P-2; stable outlook on long-term rating;

• CR Assessment of Baa1(cr)/P-2(cr).

The principal methodology used in these ratings was Banks published in March 2015. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Headquartered in Jakarta, MANDIRI reported total assets of IDR868,348 billion as of 31 March 2015.

Headquartered in Jakarta, BRI reported total assets of IDR781,181 billion as of 31 March 2015.

Headquartered in Jakarta, BCA reported total assets of IDR557,439 billion as of 31 March 2015.

Headquartered in Jakarta, BNI reported total assets of IDR407,215 billion as of 31 March 2015.

Headquartered in Jakarta, NIAGA reported total assets of IDR241,682 billion as of 31 March 2015.

Headquartered in Jakarta, DANAMON reported total assets of IDR193,811 billion as of 31 March 2015.

Headquartered in Jakarta, PANIN reported total assets of IDR169,766 billion as of 31 March 2015.

Headquartered in Jakarta, PERMATA reported total assets of IDR189142 billion as of 31 March 2015.

Headquartered in Jakarta, BTN reported total assets of IDR149,289 billion as of 31 March 2015.

Headquartered in Jakarta, ICBC INDONESIA reported total assets of IDR34,190 billion as of 30 September 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.

The following information supplements Disclosure 10 ("Information Relating to Conflicts of Interest as required by Paragraph (a)(1)(ii)(J) of SEC Rule 17g-7") in the regulatory disclosures made at the ratings tab on the issuer/entity page on www.moodys.com for each credit rating:

Moody's was not paid for services other than determining a credit rating in the most recently ended fiscal year by the person(s) that paid Moody's to determine this credit rating.

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

The below contact information is provided for information purposes only. Please see the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead analyst and the Moody's legal entity that has issued the ratings.

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
VP - Senior Credit Officer
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 concludes review on three Indonesian banks; assigns Counterparty Risk Assessment to ten banks

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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Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any rating, agreed to pay to Moody’s Investors Service, Inc. for ratings opinions and services rendered by it fees ranging from $1,000 to approximately $2,700,000. MCO and MIS also maintain policies and procedures to address the independence of MIS’s ratings and rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”

Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.

Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.

MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any rating, agreed to pay to MJKK or MSFJ (as applicable) for ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY250,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

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