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Rating Action:

Moody's upgrades Bank Permata's ratings following completion of acquisition by Bangkok Bank

09 Jun 2020

Singapore, June 09, 2020 -- Moody's Investors Service has today upgraded the long-term local and foreign currency deposit ratings of Bank Permata Tbk (P.T.) (Bank Permata) to Baa2 from Baa3.

Moody's has also upgraded the bank's Adjusted Baseline Credit Assessment (BCA) to baa2 from ba1 and affirmed its BCA at ba1.

The outlook has been changed to stable from ratings under review.

Today's rating action concludes the review for upgrade initiated on 18 Dec 2019.

A list of all affected ratings and assessments is provided at the end of this press release.

RATINGS RATIONALE

UPGRADE OF DEPOSIT RATINGS

The upgrade of Bank Permata's long-term deposit ratings to Baa2 from Baa3 follows the upgrade of the bank's Adjusted BCA to baa2 from ba1 after Bangkok Bank Public Company Limited (BBL, Baa1 stable, baa1) completed its acquisition of a 89.12% stake in Bank Permata on 20 May 2020.

Moody's has upgraded Bank Permata's Adjusted BCA after incorporating a very high level of support from BBL in times of need. Bank Permata is BBL's most significant overseas investment to date and will account for around 10% of the latter's total loans. More importantly, Bank Permata will represent a critical part of BBL's long-term strategy to diversify outside of Thailand and capture business opportunities in the growing intra-ASEAN trade space.

Moody's has also assessed that the completion of the acquisition will not materially affect BBL's consolidated credit profile, as outlined under an earlier rating action taken on BBL in December 2019. For more information on the rating action on BBL, please refer to https://www.moodys.com/research/Moodys-affirms-ratings-of-Bangkok-Bank-on-proposed-Bank-Permata--PR_414763.

At the same time, Moody's has downgraded the level of support that Bank Permata will receive from the Government of Indonesia (Baa2 stable) to moderate from high, taking into consideration Bank Permata's modest deposit market share, as well as its assessment that the Indonesian authorities will be less forthcoming in providing support in times of need because they will expect BBL to do so.

Bank Permata's deposit ratings do not benefit from any further uplift due to government support because the bank's Adjusted BCA is already at the same level as Indonesia's sovereign rating.

AFFIRMATION OF BCA

The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets. The banking industry in Indonesia has been one of the sectors affected by the shock, given the widespread decline in business revenues that has hurt borrowers' debt-servicing ability.

Moody's regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety. Today's action takes into consideration the negative impact on Bank Permata of the breadth and severity of the shock.

That said, the affirmation of Bank Permata's ba1 BCA reflects Moody's assessment that the bank will be able to withstand the immediate stress caused by the coronavirus outbreak.

Moody's expects Bank Permata's asset quality to come under significant pressure, particularly in the bank's small and medium enterprise and mid-sized corporate segments. While loan restructuring will provide temporary relief, Moody's anticipates that nonperforming loans will nevertheless increase given the magnitude of economic disruptions.

Profitability will also decline sharply, dragged down by increases in credit costs and a compression in net interest margin. Credit costs as a percentage of average gross loans have already risen to 2.3% as of 31 March 2020 from 0.4% a year earlier.

However, Bank Permata's strong capital and loan-loss coverage will provide ample buffers to absorb potential losses. Moreover, they will enable the bank to grow its loan book and restore its profitability when the crisis eventually passes. As of 31 March 2020, Bank Permata's Common Equity Tier 1 (CET1) and loan-loss coverage ratios stood at 18.7% and 152.3% respectively.

The bank also maintains strong liquidity, with its liquidity coverage ratio and net stable funding ratio standing at 236.3% and 120.8% respectively as of 31 March 2020, which are well above the regulatory requirements.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Bank Permata's long-term deposit ratings are already at the same level as Indonesia's sovereign rating. Given the stable outlook on the sovereign rating, an upgrade of the bank's ratings is unlikely.

Nevertheless, Moody's could upgrade the bank's BCA if there is a significant improvement in its asset quality, which could also lead to higher profitability.

A downgrade of Indonesia's sovereign rating could lead to a downgrade of Bank Permata's ratings. A downgrade of BBL's BCA could also lead to a downgrade of Bank Permata's Adjusted BCA and ratings.

Bank Permata's BCA and ratings could also be downgraded if there is a substantial decline in capital. A further deterioration in asset quality or profitability could also exert downward pressure on the BCA and ratings.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147865. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

List of Affected Ratings

..Issuer: Bank Permata Tbk (P.T.)

.... Adjusted Baseline Credit Assessment, Upgraded to baa2 from ba1

.... Baseline Credit Assessment, Affirmed ba1

.... Long-term Counterparty Risk Assessment, Upgraded to Baa1(cr) from Baa2(cr)

.... Short-term Counterparty Risk Assessment, Affirmed P-2(cr)

.... Long-term Counterparty Risk Rating (Foreign and Local Currency), Upgraded to Baa1 from Baa2

.... Short-term Counterparty Risk Rating (Foreign and Local Currency), Affirmed P-2

.... Long-term Deposit Rating (Foreign and Local Currency), Upgraded to Baa2 from Baa3; Outlook changed to stable from ratings under review

.... Short-term Deposit Rating (Foreign and Local Currency), Upgraded to P-2 from P-3

.... Outlook, Changed to stable from ratings under review

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

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

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

Tengfu Li
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
Client Service: 852 3551 3077

Graeme Knowd
MD - Banking
Financial Institutions Group
JOURNALISTS: 852 3758 1350
Client Service: 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
Client Service: 852 3551 3077

No Related Data.
© 2021 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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