Fitch Affirms Bank Mandiri's IDR at BB

Fitch Ratings has today affirmed PT Bank Mandiri Tbk Long-term foreign and local currency Issuer Default Ratings (IDR) at BB with a Stable Outlook, Short-term rating at B, National Long-term rating at 'AA+(idn), Individual at C/D, support rating at 3 and support rating floor at BB-.
"The Stable Outlook on Mandiri's International ratings reflects the resilience of its underlying profitability, despite the challenging operating conditions and its well-reserved NPLs. These should help cushion the bank against the impact of higher credit costs," says Tan Lai Peng, Director with the agency's Financial Institutions Group.
The ratings also reflect the bank's position as the largest majority state-owned bank in Indonesia. However, should there be a sharp deterioration in the bank's asset quality such that impairment risk on capital increases, the bank's ratings may come under pressure.
NPLs increased in Q408 and Q109 but dipped in Q209 as the currency and liquidity conditions stabilised and as the global downturn eased. Gross NPLs were therefore just slightly higher at 4.8% at end-June 2009 (end-2008: 4.7%). Provision charges were raised to 190bp-200bp of average loans in 2008 and H109 (2007: 170bp), but were well-absorbed by the bank's stronger earnings.
Pre-provision profitability improved to 3.5% of average assets in H109 from 3.1% in 2008 on higher net interest margin (NIM), increased fee income contribution and lower increase in operating expenses. Customer deposits continued to fund close to 80% of total assets; foreign currency lending was reduced and deposit funding improved in response to the tight USD funding conditions in H208. The bank's exposure to restructured loans, which may be prone to a relapse if economic conditions worsen, has also declined to 10% of total loans from 16% at end-2007. Special mention loans remained high at 9.7% of total loans at end-June 2009 due mainly to restructured loans (more than half the special mention loans are restructured loans); this reflects the bank's expansion into retail loan segments and recent downgrades from commercial loans.
An expansion in loan assets reduced Tier 1 CAR ratio to 12.6% at end-Q209 (Total CAR: 14%) from 17% at end-2007. A lower dividend payout should help conserve capital in 2009, and a sub-debt issue is being planned (in either 2009 or 2010). A simulation of a stress scenario for earnings on selected Indonesian banks rated by Fitch suggest that Mandiri's earnings buffer is quite strong against the impact of higher credit costs (as well as for a few of the larger Indonesian banks).
Bank Mandiri was formed in late 1998 from the merger of four bankrupted state owned banks in the wake of the Asia financial crisis in 1997-98. It was publicly listed in 2003 and remains majority-owned by the Indonesian government (66.8% as at end-June 2009).