Fitch upgrades ratings of 8 Indonesian Banks

Fitch Ratings has today upgraded the Long-term foreign currency (LTFC) issuer default ratings (IDRs) of eight Indonesian banks to BB+ from BB. Of these eight banks, the local currency (LTLC) IDRs of three of them have also been upgraded to BB+ from BB. The Outlooks on the above IDRs are stable.

The rating actions follow the upgrade of Indonesia's sovereign ratings where its long-term local and foreign currency IDRs were upgraded to BB+ from BB, with a stable outlook.

The Issue ratings on the existing foreign currency (FC) subordinated debt of PT Bank Mandiri (Persero) Tbk, PT Bank Internasional Indonesia Tbk and PT Bank CIMB Niaga Tbk have also been upgraded to 'BB' from BB-.
At the same time the agency has upgraded the Support Floor of Indonesia's four largest banks - namely PT Bank Mandiri (Persero) Tbk, PT Bank Rakyat Indonesia (Persero) Tbk, PT Bank Central Asia Tbk and PT Bank Negara Indonesia (Persero) Tbk - to BB from BB-.

The BB- support floor on CIMB Niaga and PT Bank Danamon Indonesia Tbk have been withdrawn. Fitch has also affirmed the short-term foreign currency (STFC) IDRs, Individual Ratings and the Support Ratings of all banks.

The National Ratings of the banks have also been affirmed, and the agency may undertake a separate review of these ratings when necessary.
"Apart from the sovereign upgrades, the positive revisions of the banks' IDRs reflect their relatively resilient financial performances, despite difficult operating conditions particularly in H109. It is also in line with Fitch's expectation for further improvements based on the stronger macroeconomic outlook in 2010," notes Tan Lai Peng, Director with the agency's Financial Institutions group.

"Although loan quality deteriorated for most banks in 2009, possibly spilling over into early 2010, the overall impact has been contained, with the effects of higher credit costs well-absorbed by the banks' good profitability. Expectations for better operating conditions this year should be generally supportive of credit quality and profitability ahead," adds Ms. Tan.

The revision in the support floors for the four Indonesian banks, as mentioned above, reflects Fitch's assessment that the state's financial ability to provide support has strengthened.

The withdrawal of the Support Floors on CIMB Niaga and PT Bank Danamon Indonesia Tbk is based on the agency's assessment that support for these banks is largely institutional-driven, although backstop support from the state is possible when needed, since these two banks represent the fifth and sixth largest banks in the local banking system, respectively.