March 14, 2012 / 8:53 AM / 6 years ago

TEXT-Fitch affirms Bank Tabungan Negara at 'AA(idn)'/stable

(The following statement was released by the rating agency)

March 14 - Fitch Ratings has affirmed Indonesia-based PT Bank Tabungan Negara (Persero) Tbk’s (BTN) National Long-Term rating at ‘AA(idn)'. The Outlook is Stable.

The affirmation reflects Fitch’s view that, despite the sovereign’s improved ability in providing extraordinary support, following the Indonesian upgrade in December 2011, BTN’s systemic importance to the domestic economy is unchanged relative to the other larger state-owned Indonesian banks. Fitch believes the state is likely to support the bank if needed in view of the government’s majority stake and BTN’s important policy role in providing subsidized financing for low-cost housing in support of the government’s housing program. Fitch views that the improved credit profile of Indonesian government (‘BBB-'/Stable) limits downside to the bank’s National Rating. The rating may come under pressure from any weakening of government support.

BTN’s financial performance remained satisfactory in 2011 with stable underlying profitability, improved asset quality and adequate capitalization. BTN’s return on assets was steady at 1.4% in 2011 as a decline in net interest margin was offset by lower provision charges due to improved asset quality.

BTN’s non-performing loans (NPL) as a share of total loans declined to 2.75% at end-2011 (2010: 3.3%), mainly due to improved asset quality amid favorable domestic economic conditions. Provision cover on NPLs was low at 0.5x at end-2011, due to a high portion of secured lending and recoveries on NPLs. Fitch notes that credit costs should be alleviated by the collateral provided by its largely residential property-backed mortgage portfolio.

The bank’s capital position remains comparable with that of its peers. Total capital adequacy ratio and Tier-1 capital ratio declined to 15.0% and 14.2% at end-2011, respectively (2010: 15.8% and 16.7%) as a result of loan expansion and full implementation of operational risk for Basel II.

BTN improved its funding structure in 2011 with higher total low-cost saving deposits and demand deposits at 45% of total deposits at end-2011 (2010: 33%) though it was still lower than that of other state-owned banks that Fitch rates. BTN has tapped other sources of funding by issuing senior bonds and through onshore securitization of its residential mortgage loans since 2009 to support loan growth. Bond issuance will also help reduce the bank’s exposure to maturity and interest mismatch risks.

BTN is 72%-owned by the Indonesian government and the country’s tenth-largest bank by assets at end- 2011.

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