Moody's Investors Service affirmed PT Bank CIMB Niaga Tbk (IDX: BNGA) Baa2 long-term local and foreign currency deposit ratings with outlook remains stable - Photo by the Company

JAKARTA (TheInsiderStories) – Moody’s Investors Service affirmed PT Bank CIMB Niaga Tbk (IDX: BNGA) Baa2 long-term local and foreign currency deposit ratings with outlook remains stable. The affirmation of rating incorporates Moody’s assessment of a very high probability of support from CIMB Group Holdings Berhad (Baa1 stable) in times of need.

The support assumption takes into consideration the 92.5 percent controlling stake in the bank, as well as the strategic importance of Indonesia in CIMB Group’ ASEAN strategy. While, the lender’ ba1 baseline credit assessment (BCA) reflects the bank’ robust capital and liquidity, which provide it with ample buffers to absorb economic shocks caused by the pandemic.

The BCA also considers the challenging operating environment that will continue to weigh on the lender’ asset quality and profitability. Moody’s assumes a high probability of support from the government (Baa2 stable) in times of need, taking into consideration CIMB Niaga‘ systemic importance to the banking system as the sixth-largest bank in Indonesia by assets.

However, this does not lead to any uplift in the lender’ deposit ratings because the adjusted BCA, which incorporates support from CIMB Group, is already at the same level as the sovereign rating. Indonesia’ weak economic conditions will continue to strain the bank’ asset quality. While a regulatory relaxation on loan restructuring has helped limit the increase in nonperforming loans, Moody’s expects some of the restructured loans to default eventually, with the extent depending on the pace of economic recovery.

CIMB Niaga‘ nonperforming loan ratio rose to 3.6 percent in 2020 from 2.8 percent a year ago, while its restructured loans that are classified as performing increased to 16.8 percent of gross loans from 0.9 percent over the same period. The ongoing challenges in asset quality will translate into elevated loan-loss provisions for the issuer.

Moody’s expects the bank to remain proactive in setting aside loan-loss provisions for potential slippages in restructured loans, which in turn, will limit any profitability improvement. In 2020, the bank’ return on average assets stood at 0.7 percent, down sharply from 1.5 percent a year ago, mainly as a result of higher credit costs.

Nevertheless, CIMB Niaga maintains ample loss buffers against asset risks. The bank’ tangible common equity as a percentage of risk-weighted assets remained strong at 16.0 percent as end of 2020. Its loan-loss reserve as a percentage of loans at risk, which include special-mention and restructured loans, was 30.0 percent as of the same date, largely in line with its domestic peers.

Also, its funding and liquidity will remain strong, underpinned by its established deposit franchise in Indonesia. As of Dec. 31, 2020, CIMB Niaga’ current and savings account ratio was largely in line with the industry at 59.6 percent, while its liquidity coverage ratio was 235.2 percent, well above the 85 percent regulatory minimum.

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