PT Bank Mandiri Tbk (IDX: BMRI) looking fresh funds from Eurobond market around US$2 billion - Photo: Special

JAKARTA (TheInsiderStories) – Indonesia’s state-owned lender PT Bank Mandiri Tbk (IDX:BMRI) raised Rp3 trillion (US$206.90 million) from sales of five-year bond at a coupon of 8.5 per cent per annum. The bond was officially listed on the Indonesia Stock Exchange on Monday (24/9).

BMRI Director of Treasury and Institutional Banking Darmawan Junaidi said The lender received bids of Rp4.1 trillion, or 1.36 oversubscribed in the offering. He added, that the whole fund from the issuance will be used for loan expansion in order to develop the bank’s operation.

The lender has appointed six securities firm as underwriters namely Mandiri Sekuritas, Bahana Sekuritas, BCA sekuritas, BNI Sekuritas, Danareksa Sekuritas and Trimegah Sekuritas.

Based on the Financial Service Agency report, the total credit of commercial banks for third parties in July 2018 was recorded at Rp4,976 trillion. This number grew 11.3 percent in annually basis (YoY) compared to July 2017’s credit position of Rp4,469 trillion.

Working capital loans recorded the highest increase of 11.6 percent YoY, while growth in consumption and investment loans grew by 11.5 percent and 10.7 percent YoY respectively.

While, credit quality has deteriorated slightly in July 2018. The Non Performing Loan (NPL) ratio in July 2018 rose to 2.73 percent from 2.67 percent in June 2018.

Bank Mandiri believes in the future, the positive trend of credit growth will continue to the end of 2018. However, these positive trends cannot be separated from several risks.

First, the increase in bank interest rates due to the increase in Bank Indonesia’s benchmark interest rate we expect will have a negative impact on credit growth.

In addition, third party fund growth which is slower than credit growth results in bank liquidity likely to tighten until the end of the year. This has the potential to reduce the rate of bank credit growth going forward. Bank Mandiri’s economic research team predicts credit growth in the range of 10-11 percent for 2018.

On August, Moody’s Investors Service has changed its outlook for the Indonesian banking system to stable from positive following the rating upgrade of the sovereign and many rated banks during April-June 2018.

Moody’s Vice President and Senior Analyst Simon Chen said in a press release on August 7 that the stable outlook reflects Moody’s assessment that over the next 12-18 months, banks in Indonesia will show stabilizing asset quality in a robust macroeconomic environment.

“During this period, the banks will also demonstrate large loss-absorbing buffers, underpinned by their strong profitability,” he added.

Moody’s decision to change the outlook for the banking system to stable also follows its upgrade of the rating of the Indonesian sovereign and many rated banks to Baa2 from Baa3 with a stable outlook in April 2018 and the change in the rating outlook to stable from positive, as well as the upgrade of the baseline credit assessments for seven of the nine rated banks during April-June 2018 period.

It said, strong economic growth will support the operating environment for banks over the next 12-18 months. In particular, macroeconomic policies will lead to real GDP growing 5.2 percent annually in 2018-19, after 5.1 percent expansion in 2017. And, loan growth will accelerate to 10 – 12 percent annually during this outlook period from 8.2 percent in 2017.

Asset quality will broadly stabilize over the next 12-18 months, as a stronger economy drives corporate revenue growth. The formation rates of new nonperforming loans and restructured loans will remain far below their 2016 peaks after sharp declines in 2017.

Robust internal capital generation will keep capitalization at current strong levels. Specifically, the banks’ robust revenue growth and declining credit costs will enable them to generate sufficient capital to support accelerating asset growth.

Moody’s points out that the system’s Tier 1 capital ratio, which exceeded 20 percent at the end of May 2018, is well above those of other Asian systems.

On liquidity, deposit growth will mitigate funding pressure. While faster loan growth will pressure the banks’ funding levels with loan-to-deposit ratios at some banks rising, the potential tightening of funding will be modest because deposits will expand at a similar pace, supported by corporate revenue growth.

In addition, the banks’ core profitability will remain strong, supported by wide net interest margins of around 5 percent, which is well above their regional peers.

Government support will stay strong. Moody’s explains that its upgrade of Indonesia’s sovereign rating in April 2018 reflects the government’s improved capacity to support the banks. Moreover, the financial safety net law provides a sound legal basis and framework for the government to extend support.

Moody’s rates nine banks in Indonesia namely PT Bank Rakyat Indonesia Tbk (IDX: BBRI), Bank Mandiri, PT Central Bank Asia (IDX: BBCA), PT Bank Negara Indonesia Tbk (IDX: BBNI), PT Bank Tabungan Negara Tbk (IDX: BBTN), PT Bank CIMB Niaga Tbk (IDX: CIMB), PT Pan Indonesia Bank Tbk (IDX: PNBN), PT Bank Danamon Indonesia Tbk (IDX: BDMN), PT Bank Permata Tbk (IDX: BNLI). These banks accounted for 66 percent of total system assets at the end of March 2018.

The nine banks already release its financial report for the first semester this year. BBNI recorded highest loan growth at 18.5 percent YoY or Rp191.47 trillion in the semester this year, followed by BBRI that booked 15.19 percent loan growth at Rp758,96 trillion in the first half of 2018.

Furthermore, BBCA recorded 14.2 percent YoY loan growth at Rp494.46 trillion, followed by BBNI’s loan growth that grew 10.94 percent YoY at Rp431.86 trillion in the first semester of this year.

Meanwhile, BBRI recorded highest net income at Rp14.55 trillion in the first semester of 2018, a 8.23 percent rise from Rp13.44 trillion in the same period previous year.

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