Fitch Says State-Owned Banks Are Healthy Despite Tough Economic Times

Fitch Ratings has said earnings at four state-owned banks have remained robust despite high interest rates, lower commodities prices and the depreciation of the rupiah.

Fitch said in a release on Friday that it affirmed BBB rating on Bank Mandiri, Bank Rakyat Indonesia, Bank Negara Indonesia and an AA (Idn) rating to Bank Tabungan Negara.

It noted that the banks’ earnings and asset quality remained manageable amid slowing domestic economic growth. The agency argued that the banks have improved their credit risk management and have more diversified credit portfolios.

“Fitch expects the state-owned banks’ financial performance to remain sufficiently resilient in the face of worsening operating conditions, underpinned by their strong loss-absorption cushion as a result of strong profitability, high provision coverage and adequate core capital,” the rating agency said.

Still, profit growth in the banks is likely to slow due to higher cost of funds, lower loan demand and higher provision charges.

Fitch said loan growth at the four banks was likely to moderate to between 15 percent to 20 percent due to higher interest rates, lower commodities prices, and the depreciating rupiah. The agency anticipates an increase in non-performing loans in the latter half of 2013 from historical lows at the end of June. Loans have been growing by 22 percent in the January-August period.

Based on Fitch’s stress tests, the four state-owned banks have sufficient pre-provision profit to tolerate loan losses — at up to 5.5 percent of total loans for BRI, Mandiri and BNI and up to 3 percent for BTN.

The average credit losses experienced by the four banks between 2009 and the first half of this year were less than 1 percent for BTN, 1 percent for Mandiri, and 2 percent for BRI and BNI, Fitch said.

In particular, Fitch noted that loan growth at BTN, the country’s largest mortgage lender, would be least affected by Bank Indonesia’s tighter down-payment regulation for property purchases issued in September.

The central bank has raised down-payment requirements on second and third home purchases to as high as 50 percent, from 30 percent previously.

“The regulation does not apply to subsidized loans, which form the majority of BTN’s portfolio because most of its customers are first-time home buyers,” Fitch said.