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20 Jul 2010
Foreign currency long-term deposit rating of Ba3 with positive outlook unaffected
Singapore, July 20, 2010 -- Moody's Investors Service has raised Bank Mandiri's bank financial
strength rating (BFSR) to D from D-. The outlook for the
revised rating is stable. Similarly, the higher D BFSR maps
to a baseline credit assessment of Ba2 from Ba3. No other ratings
were affected and carry stable outlooks unless indicated: the foreign
currency long-term/short term deposit remain Ba3 with a positive
outlook/Not Prime and the global local currency (GLC) deposit Baa3.
"The rating action incorporates marked and sustained improvements
in the bank's financial performance -- particularly in profitability
and asset quality - as a result of its transformation since 2005,"
says Beatrice Woo, a Moody's Vice President and Senior Credit
"The bank's net interest margin has widened through a shift
in its loan mix towards the higher-yielding retail segment,
and this has been accompanied by a move towards lower-cost deposits,"
says Woo. "Retail loans increased from 20% of loans
at end-2005 to 27% at March 2010, while low cost deposits
grew from 45% of deposits to 57% over this period."
As for asset quality, the bank reduced its non-performing
loans ratio to 2.6% of loans at March 2010 through active
management from 25.2% at end-2005. And importantly,
its coverage ratio rose substantially from 44.4% to 219.1%.
Restructured loans, traditionally very high at Bank Mandiri,
were significantly cut to 8% of loans at March 2010 from 19%
Moreover, while its capital ratios have fallen steadily, its
economic solvency is positive, even after adjustments for additional
provisions against its balance of non-performing loans.
As part of its transformation, it has also internally restructured
and strengthened its operating platform, particularly in corporate
governance, risk management and internal controls.
Many of the changes at the bank were initiated by a management team installed
in May 2005, and following allegations of graft involving former
senior management and a surge in non-performing loans due to Bank
Indonesia's implementation of stricter loan classification rules,
and which questioned the effectiveness of Bank Mandiri's risk positioning.
Moody's notes that the bank's former Chief Executive Officer
assumed the post of finance minister in April 2010 and his successor was
named on July 5. However, as the new CEO was a director at
the bank and in Moody's opinion, many of the changes in practices
and strategic focus initiated since 2005 have become institutionalized,
the higher BFSR anticipates that the bank's direction will remain
in a positive trend.
In its current strategy, management has identified three areas of
focus: (1) developing its wholesale transaction franchise with services
such as cash management, foreign exchange and payroll loans;
(2) retail deposit banking; and (3) loans in retail segments including
mortgages, personal loans, credit cards, micro-banking
in urban cities and Syariah. Furthermore, Bank Mandiri is
capitalizing on its government links for new business opportunities,
such as cooperative arrangements with universities and potentially,
the Post Office.
In addition, the BFSR incorporates the bank's dominant franchise
as the largest bank in the country with a 14.7% share of
system deposits at March 2010.
On the other hand, Moody's believes that Bank Mandiri may
be vulnerable to government influence, a situation which also weighs
upon its BFSR, given the significant level of state ownership,
as with other state-owned banks in Indonesia.
The last rating action on Bank Mandiri was taken on June 21 2010 when
the outlook on its Ba3 foreign currency long-term deposit rating
was revised to positive from stable. The action was in line with
similar actions taken on Indonesia's sovereign ratings on June 21 2010.
The principal methodologies used in rating these banks were "Bank Financial
Strength Ratings: Global Methodology," February 2007 and "Incorporation
of Joint-Default Analysis into Moody's Bank Ratings: A Refined
Methodology," March 2007, which can be found on www.moodys.com
in the Rating Methodologies sub-directory under the Research &
Other methodologies and factors that may have been considered in the process
of rating this issuer can also be found in the Rating Methodologies sub-directory
on Moody's website.
Bank Mandiri is headquartered in Jakarta and had assets of IDR399.3
trillion at March 2010.
The detailed ratings and actions are shown below. All carry stable
outlooks except where indicated:
GLC deposit of Baa3, foreign currency long-term deposit rating
of Ba3 with a positive outlook, foreign currency short-term
deposit of Not Prime and BFSR of D
VP - Senior Credit Officer
Financial Institutions Group
Moody's Singapore Pte Ltd.
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308
John Moh Kan Tham
VP - Senior Credit Officer
Financial Institutions Group
Moody's Singapore Pte Ltd.
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308
Moody's raises Bank Mandiri's financial strength rating to D
No Related Data.
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