Fitch Revises Outlook on 7 Indonesian Banks to Positive The Indonesia Today

Fitch Ratings has revised the Outlook to Positive from Stable for the Long-Term Issuer Default Ratings (IDRs) of seven Indonesian banks.

They are PT Bank Mandiri (Persero) Tbk (Mandiri), PT Bank Rakyat Indonesia (Persero) Tbk (BRI), PT Bank Negara Indonesia (Persero) Tbk (BNI), PT Bank Central Asia Tbk (BCA), PT Bank CIMB Niaga Tbk (CIMB Niaga), PT Bank OCBC NISP Tbk (OCBC NISP), and PT Bank Internasional Indonesia Tbk (BII).

Concurrently, the agency has revised the Support Rating Floor of Mandiri, BRI, and BNI to 'BB+' from 'BB'.

The Outlook revision follows Fitch's recent change in the Outlook of Indonesia's Long-Term IDRs of 'BB+' to Positive from Stable (see "Fitch Revises Indonesia's Outlook to Positive; Affirms at 'BB+'", dated 24 February 2011).

While Fitch has already factored in a high propensity of state support for Mandiri, BRI and BNI in their Support Rating of '3' due to their systemic importance to the Indonesian economy and their government ownership status, the agency expects that the government's ability to provide support - if needed - to gradually improve. This is reflected in the revision of the three banks' Support Rating Floor, which now matches the 'BB+' LT IDRs of the sovereign. This, together with the sovereign IDRs on a Positive Outlook, underpins the corresponding revision of the Outlook of the three banks to Positive.

Separately, the Positive Outlook on BCA reflects Fitch's expectations that the bank's already strong performance will likely benefit from the improved economic conditions in Indonesia. The agency notes BCA's consistently above-average financial performance, even during the economic downturn in 2008/2009.

Meanwhile, the Positive Outlook on CIMB Niaga, OCBC NISP, and BII reflects Fitch's expectation that the banks will be upgraded in the event of a sovereign rating upgrade. The banks' ratings are driven by strong support from their foreign parent banks, which are rated higher than Indonesia's sovereign rating.

Broadly, Fitch expects the Indonesian banks to continue exhibiting robust profitability in 2011 as strong loan demand and manageable credit costs should counterbalance the pressure on margins from competition and, potentially, higher funding cost.

The agency also expects the banks' capital ratios to ease but remain satisfactory for protection against loss, on expected favourable economic conditions. Plans to reduce dividend payouts and inject new capital, if needed, should also somewhat mitigate the downward pressure on capital ratios arising from moderating but still fast loan growth and from implementation of Basel II operational risk in 2011.

The ratings of foreign-owned banks in Indonesia may also benefit if there is further evidence that their fast loan growth and earnings can be sustained without comprising asset quality, capital and liquidity.