Reuters logo
Fitch: Economic Pick-Up Won't Immediately Boost Indonesian Banks
March 22, 2017 / 5:42 AM / in 9 months

Fitch: Economic Pick-Up Won't Immediately Boost Indonesian Banks

(The following statement was released by the rating agency) JAKARTA/SINGAPORE, March 22 (Fitch) A likely pick-up in Indonesia's economy could translate in stronger bank performance over the medium term, says Fitch Ratings. However, asset quality and profitability may still remain under pressure over the next few quarters - and, for now, the sector remains on negative outlook. Indonesia's economic outlook is slowly improving. We expect real GDP growth to accelerate to 5.3% in 2017, from 5.0% in 2016, driven by a pick-up in public investment and the lagged effects of previous monetary policy easing. The renewed push on structural reform should support business investment. Headwinds from the downturn in the commodity sector are also fading. The operating environment for banks should gradually become less challenging as economic conditions strengthen, and we expect some signs of stabilisation in bank performance in 2017. Loan demand has remained weak so far in 2017, but a slight pick-up is likely by year end. We also expect profitability to bottom out, despite credit costs remaining high, with the return-on-assets (ROA) of large banks likely to remain flat at around 1.8%. This is lower than before the commodity price collapse, but still high compared with regional peers. However, Indonesian banks face a number of short-term risks that could still add to pressure on their performance this year. On the external side, the Federal Reserve's tightening cycle - which we expect to involve two more rate hikes this year - creates uncertainty over the stability of the rupiah. A weaker rupiah would make it more difficult for domestic borrowers to service foreign currency-denominated debt, which account for around 15% of bank loans. The main domestic risk is the banks' large stock of restructured loans. The Indonesian authorities relaxed rules on restructuring loans in 2015, which helped banks to avoid a sharper rise in NPLs during the worst of the commodity-sector downturn. Most restructuring involved an extension of loan maturities. Slippage of these loans, and other lingering effects of the commodity sector downturn, could put additional pressure on NPL ratios - which, in any case, are likely to remain high at 3.0% on average for the large banks. The strong capitalisation of large banks acts as a buffer against these risks. Their average Tier 1 ratio was a healthy 19.0% at end-2016, and most of them would have already met the Basel III requirements if the maximum additional capital charges were applied at end-2016. Meanwhile, proposed bail-in measures are creating uncertainty over bank ratings that are driven by sovereign support. The lack of clarity on whether the regulations might include provisions for the bail-in of senior creditors is one reason why the recent upward revision of Indonesia's sovereign rating, in December 2016, does not necessarily create upward rating potential for state-owned banks. The authorities are due to provide details by next month. The outlook for Indonesia's banking sector and other key themes concerning the country's economy, corporate sectors and credit markets will be discussed at Fitch Ratings' Indonesia Credit Briefing on 23 March in Jakarta. Contact: Gary Hanniffy Director Financial Institutions +62 21 2988 6808 PT Fitch Ratings Indonesia DBS Bank Tower, 24th Floor, Suite 2403 Jl. Prof. Dr. Satrio Kav 3-5 Jakarta, 12940 Dan Martin Senior Analyst Fitch Wire +65 6796 7232 The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available on www.fitchratings.com ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below