Fitch assigns BRI sub debt expected rating of' AA

Fitch Ratings has today assigned an expected rating of AA+(idn) to PT Bank Rakyat Indonesia Tbk's (BRI) proposed five and 10 year subordinated bond amounting to a maximum of IDR3 triliun. The final rating on the issue is contingent on the receipt of final documents conforming to information already received. A full list of BRI's affirmed ratings is included at the end of this release.
As per Fitch's rating methodology, the issue rating is rated one notch below the issuer's National Long-term rating and reflects its subordination to senior obligations. Meanwhile, the affirmations of BRI's ratings reflect its strong underlying profitability, higher but well-reserved NPLs, which should continue to provide a strong buffer against the effects of more challenging economic conditions.
"The bank's strong profitability is underpinned by its largely unchallenged position as a leading bank for micro-lending in Indonesia and should help cushion the impact of higher credit costs," says Julita Wikana, Associate Director with the agency's Financial Institutions Group.
BRI's ratings also take into account its majority state-ownership and size. However, any significant weakening in the bank's capital position and/or asset quality, such that impairment risk on capital increases, may exert pressure on the bank's National and Individual ratings.
The moderate rise in the gross NPL ratio to 3.7% at end June 2009 (end-2008: 2.8%) reflects a weakening in asset quality across all major segments amid the challenging economic conditions. However, this is below the industry average of 4.5%. The bulk of the weakening occurred in the corporate, medium and small commercial business segments, while NPLs in BRI's core micro and consumer lending remained low at less than 2% during 2008-H109. BRI continued to maintain provision cover at 153% of NPLs at end-June 2009.
Profitability remained among the highest in the industry with pre-tax ROA at 3.8% in H109, reflecting strong lending yields on its micro-credits as well as the bank's strong deposit franchise. However, NIM continued to decline to 8.9% in H109 (2007: 9.6%) due mainly to higher funding costs as the portion of lower cost of demand/savings continued to decline.
Rapid expansion in loan assets have reduced tier 1 CAR to 13.3% at end-June 2009 (total CAR at 14.7%). Fitch notes that there have been efforts to conserve capital through a lower dividend payout and a focus on expansion in lower risk-weighted loan assets. The proposed rupiah subdebt is expected to increase total CAR by about 2%. BRI intends to maintain total CAR at a minimum of 12% in the medium-term.