Moody's Investors Service has affirmed PT Bank Central Asia Tbk (IDX: BBCA) and PT Bank Tabungan Negara Tbk (IDX: BBTN)' Baa2 long-term local and foreign currency deposit ratings - Photo: Special

JAKARTA (TheInsiderStories) – Moody’s Investors Service has affirmed PT Bank Central Asia Tbk (IDX: BBCA) and PT Bank Tabungan Negara Tbk (IDX: BBTN)’ Baa2 long-term local and foreign currency deposit ratings, the agency announced yesterday. Moody’s has also affirmed the bank owned by DJarum Group’ baa2 Baseline Credit Assessment (BCA) and the outlook remains stable.

The affirmation of Bank Central Asia’ deposit ratings reflects the its superior risk management and transaction banking franchise, which result in a highly profitable bank when compared to the industry. The ratings also incorporate lender’ robust capital and liquidity, which provide it with ample buffers to absorb the economic shock caused by the coronavirus pandemic.

Bank Central Asia‘ BCA is at the same level as the bank’ deposit ratings. Moody’s assumes a very high probability of support from the government of Indonesia (Baa2 stable) in times of need, but this does not lead to any uplift because the BCA is already at the same level as the sovereign rating.

The bank’ standalone credit profile is the strongest among its rated peers in Indonesia. However, given that the bank’s operations are largely within Indonesia and therefore subject to the same domestic conditions, Moody’s has not assigned a BCA that is higher than the sovereign rating.

Bank Central Asia‘ asset quality and profitability were affected by the economic contraction caused by the coronavirus outbreak. The bank restructured 13.9 percent of its unconsolidated loans as of Sept. 30, 2020, after the financial regulator relaxed its regulation on loan restructuring in March 2020.

At the same time, its return on average assets fell to 2.8 percent in the nine months ended 30 September 2020 from 3.2 percent a year ago as a result of increases in loan-loss provisions. Nevertheless, the issuer maintains ample capital and loan-loss reserves to absorb the economic shock caused by the coronavirus outbreak.

As of end September, its tangible common equity as a percentage of risk-weighted assets and unconsolidated loan-loss coverage were high at 22.4 percent and 243.5 percent, respectively. Moreover, Bank Central Asia‘ funding and liquidity will remain strong, underpinned by its leading position in transaction banking. At the same period, the bank’ current and savings account ratio and liquidity coverage ratio were 76.4 percent and 359.6 percent, respectively.

Bank Tabungan Negara

Moody’s has also affirmed Bank Tabungan Negara‘ ba1 Baseline Credit Assessment (BCA) and Ba3 (hyb) long-term foreign-currency subordinated debt rating. At the same time, Moody’s has revised BBTN’ rating outlook, as applicable, to negative from stable.

The support assumption is underpinned by the government’ majority stake in the bank, the policy role in the national housing program, and its systemic importance to the financial system as one of the largest banks in Indonesia by deposits. The change in outlook to negative reflects risks to the bank’ asset quality, as the economic contraction caused by the coronavirus pandemic has exacerbated pre-existing weaknesses in its loan portfolio.

The repayment capacity of a large number of Bank Tabungan Negara” borrowers has been affected by the COVID-19 shock to the economy, as indicated by the substantial amount of restructured loans after the financial regulator relaxed the regulation on loan restructuring in March 2020. Until September, the state lender had restructured more than 20 percent of its gross loans since the measure was introduced.

Moody’s expects the bulk of the asset quality deterioration to be led by the bank’ non-subsidized mortgages and construction loans, which accounted for 31.5 percent and 10.8 percent of the gross loans as of Sept. 30, 2020. Asset risk associated with subsidized mortgages, which constituted 45.6 percent of the its gross loans as of the same date, will however be mitigated by guarantees.

Further, the loan restructuring program and an interest subsidy scheme introduced by the government will provide relief to Bank Tabungan Negara‘ low-income mortgage borrowers. However, Moody’s anticipates some of the restructured loans to become nonperforming. The extent of any slippage will depend on the speed of Indonesia’ economic recovery.

The lender ability to absorb losses, in terms of pre-provision income and capital, is modest when compared to its rated peers in Indonesia. The bank’ pre-provision income as a percentage of average assets was 1.2 perent in the first nine months, while its tangible common equity over risk-weighted assets was 9.3 percent as of the same date.

Meanwhile, Bank Tabungan Negara‘ liquidity has improved amid easing liquidity conditions. Its liquidity coverage ratio was 178.4 percent in nine months of 2020, up from 131.1 percent a year ago. The issuer will continue to benefit from government-related deposits and borrowings, and is likely to receive more concessional funding from the government to expand its subsidized mortgages.

Bank Central Asia is headquartered in Jakarta and reported a consolidated assets of Rp1,004 trillion (US71.20 billion) $as end of September 2020. While, Bank Tabungan Negara reported a consolidated assets of Rp357 trillion in the same period.

US$1: Rp14,100

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