April 27, 2017 / 8:24 AM / 3 months ago

Fitch Downgrades Mayapada to 'BBB+(idn)'; Outlook Stable

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(The following statement was released by the rating agency) JAKARTA, April 27 (Fitch) Fitch Ratings Indonesia has downgraded the National Long-Term Rating of PT Bank Mayapada Internasional Tbk to 'BBB+(idn)' from 'A-(idn)' and its National Short-Term Rating to 'F2(idn)' from 'F1(idn)'. The Outlook is Stable. The downgrade of Mayapada's National Ratings reflects Fitch's assessment of the bank's continued strong appetite for credit growth, despite a prevailing weaker operating environment for banks in Indonesia, and the heightened risks to its asset quality and capitalisation as a result. 'A' National Long-Term Ratings denote expectations of low default risk relative to other issuers or obligations in the same country. However, changes in circumstances or economic conditions may affect the capacity for timely repayment to a greater degree than is the case for financial commitments denoted by a higher rated category. 'BBB' National Ratings denote a moderate default risk relative to other issuers or obligations in the same country. However, changes in circumstances or economic conditions are more likely to affect the capacity for timely repayment than is the case for financial commitments in a higher rated category. 'F1' National Short-Term Ratings indicate the strongest capacity for timely payment of financial commitments relative to other issuers or obligations in the same country. On Fitch's National Rating scale, this rating is assigned to the lowest default risk relative to others in the same country. Where the liquidity profile is particularly strong, a "+" is added to the assigned rating. 'F2' National Short-Term Ratings indicate a good capacity for timely payment of financial commitments relative to other issuers or obligations in the same country. However, the margin of safety is not as great as in the case of the higher ratings. KEY RATING DRIVERS Mayapada's rating reflects Fitch's assessment of the bank's small franchise, its strong appetite for credit growth, with associated growth risk to its already weak asset quality, its below-industry-average capitalisation and its weak deposit funding profile. Mayapada had a 0.9% market share of the Indonesian banking industry in terms of total assets as of end-2016 (end-2015: 0.6%). The bank has exhibited high growth appetite in recent years. Mayapada's loan portfolio grew by 37.8% in 2016 (2015: 31.7%), far above the industry average of 7.9%. In Fitch's view, the bank's very high growth raises the risks of asset quality and capital impairment in future. Mayapada's non-performing loans ratio improved to 2.1% at end-2016, from 2.5% in the prior year, however its 'special mention' loans (SML) ratio rose to 23.7% (end-2015: 17.1%), as a result of the bank's exposure to lower-tier borrowers that are more vulnerable to economic downturns. Mayapada's SML ratio is the highest among Fitch-rated Indonesian banks, and it raises the risks of asset-quality impairment, particularly if economic conditions were to deteriorate. Mayapada completed a IDR1 trillion rights issue in 2016 and it plans another rights issue to raise a further IDR1 trillion in 2H17. The bank's Tier-1 capital ratio rose to 11.3% at end-2016, from 9.9% at end-2014, but it remains well below the industry average of 21.2%. Fitch believes capital injections from Mayapada's shareholders will be critical to support the bank's business development and ability to absorb potential losses from its strong asset growth. Funding is mainly sourced from customer deposits, at around 97% of its total funding at end-2016. In Fitch's view, the bank's weak deposit franchise is reflected in its reliance on higher-cost time deposits, which made up more than 84% of its total deposits, significantly above the industry average of around 45%. RATING SENSITIVITIES Mayapada's ratings are sensitive to its risk appetite profile. Continued high loan growth, such that it remains significantly above the industry average and its internal capital generation, which in turn may result in deterioration in asset quality and capitalisation, may result in negative rating action. A reduced appetite for loan growth, together with sustained improvements in asset quality, risk-adjusted profitability and capitalisation, may lead to positive rating action. Contact: Primary Analysts Iwan Wisaksana Director +62 21 2988 6807 PT Fitch Ratings Indonesia DBS Bank Tower 24th Floor, Suite 2403 Jl. Prof. Dr. Satrio Kav 3-5 Jakarta, Indonesia 12940 Committee Chairperson Jonathan Lee Senior Director +886 2 8175 7601 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com. 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