Fitch Rating reaffirms the long-term default risk rating on the Rupiah bond of the Indonesian Export Financing Agency by BBB with a stable outlook - Photo by the Company

JAKARTA (TheInsiderStories) – Fitch Rating reaffirms the long-term default risk rating on the Rupiah bond from the Indonesian Export Financing Agency (Eximbank) by BBB with a stable outlook, it said on Monday (04/13). The government’ support becomes Fitch’ benchmark that the lender’ capability can still be maintained in developing the country’ export industry.

Moreover, the company is regulated by Law Number 2 of 2009, which establishes the role of entity policy, legal status, supervision, dividend policy, and options for capital injection. This means that the bank is not subject to the state bankruptcy law, and can only be dissolved by the Special Parliamentary Act.

Based on the bill, the Indonesian government is legally required to maintain Eximbank‘ capital of at least Rp4 trillion (US$254.77 million) and capital injections have been carried out in the past. Fitch also ranked senior foreign currency and rupiah bonds at the same level, BBB.

Last march, the lender has aborted the rest of conventional and sharia bond issuances planned with total amount around Rp32 trillion in two years period. Until the deadlines has been approved by the Financial Service Agency, the company only raised Rp17.56 trillion.

“”The achievement of the target fund to be collected is due to the condition of the Indonesian capital market which does not allow us to reduce the cost of funds to provide financing with competitive interest rates,” said Eximbank in the official statement.

In 2019, the nonperforming loan ratio of the bank rose sharply to 23.4 percent from 13.7 percent a year ago, driven by an increase in bad loans from large exposures in the mining, palm oil and textile segments. The bank’ asset quality is expecting to remain weak over the next 12 – 18 months, due to the slowdown in global trade and potential slippages from a high stock of special mention loans.

Profitability will also be under negative pressure because of the need to make additional provisions. Eximbank reported a net loss of Rp4.7 trillion for 2019, largely a result of high provisioning costs.

Nevertheless, the state company’ capital has remained stable, with the loss in 2019 partially offset by a Rp2.5 trillion capital infusion from the government during that same year. The Tier 1 capital ratio stood at 16.8 percent at the end of 2019, unchanged compared to a year ago.

As planned, the government will inject another Rp5 trillion this year, although part of it will be offset by a one-time increase in loan-loss provisions. Eximbank’ liquidity improved marginally in 2019, helped by debt refinancing, a shrinking loan book and the capital infusion.

While the bank remains susceptible to external market conditions as a result of its reliance on wholesale funding, refinancing risks are somewhat mitigated by its quasi-sovereign status.

Eximbank‘ headquartered in Jakarta, and reported total assets of Rp108.7 trillion as of Dec. 31, 2019.

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