Fitch Affirms Indonesia's Bank BTPN at 'AAA(idn)'; Outlook Stable

2023-04-18 13:21:37 · Fitch Ratings

Fitch Ratings Indonesia has affirmed PT Bank BTPN Tbk's National Long-Term Rating at 'AAA(idn)' and National Short-Term Rating at 'F1+(idn)'. The Outlook is Stable. At the same time, Fitch has affirmed the bank's senior unsecured issue rating at 'AAA(idn)'.

'AAA' National Long-Term Ratings denote the highest rating assigned by the agency in its National Rating scale for that country. This rating is assigned to issuers or obligations with the lowest expectation of default risk relative to all other issuers or obligations in the same country or monetary union.

'F1' National Short-Term Ratings indicate the strongest capacity for timely payment of financial commitments relative to other issuers or obligations in the same country. Under the agency's National Rating scale, this rating is assigned to the lowest default risk relative to others in the same country or monetary union. Where the liquidity profile is particularly strong, a "+" is added to the assigned rating.

KEY RATING DRIVERS

Support-Driven Ratings: BTPN's National Ratings are support-driven and reflect our expectation that the bank's higher-rated parent, Sumitomo Mitsui Banking Corporation (SMBC, A-/Stable/a-), has a high propensity and ability to extend extraordinary support to its subsidiary, should it be needed. BTPN is 92.4%-owned by SMBC.

Linked to Parent's IDR: The subsidiary's rating is credit-linked to its parent's Long-Term Issuer Default Rating (IDR), as we believe extraordinary support would be allowed to flow from the Japanese government through SMBC to BTPN, if required. This is based on our opinion that BTPN is strategic to SMBC group's presence in emerging markets in Asia. However, potential support is most likely to come from the parent's own financial resources.

Strong Ability to Support: Fitch believes SMBC, one of Japan's three largest banking groups, has considerable ability to support its Indonesian subsidiary, considering SMBC's high credit rating and BTPN's small size compared with SMBC. Its total assets and equity stood at only 0.7% and 3.2%, respectively, of its parent's consolidated assets and equity at end-2022.

Strategically Important Subsidiary: BTPN's strategic role in the SMBC group includes providing the group with a foothold in emerging Asia and in catering to Japanese clients operating in Indonesia. Our view of SMBC's propensity to provide support to BTPN also considers the strong alignment in key areas - operational, risk management and key personnel -, high reputational damage to the parent if the subsidiary were to default, and the parent's majority ownership.

Moderate Standalone Strength: BTPN's National Long-Term Rating is not driven by its standalone profile, which is constrained by its moderate franchise as a mid-sized Indonesian bank, even though it has better asset quality than most peers. Its moderate profitability, as well as its capitalisation, and funding and liquidity profiles benefit from ordinary support from SMBC.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to negative rating action/downgrade:

A downgrade could result from a weakening in the bank's overall credit profile relative to other entities within our Indonesian national ratings universe. This could result from a two-notch downgrade of SMBC's Long-Term IDR to 'BBB', but we believe this prospect to be unlikely in the near to medium term.

A downgrade would also be likely to result from a perceived weakening in SMBC's propensity to support BTPN. This could arise from a declining role for BTPN in SMBC group, perhaps due to a reassessment of its business prospects in Indonesia, or a major change in ownership - although Fitch sees little risk of these occurring in the near to medium term.

Factors that could, individually or collectively, lead to positive rating action/upgrade:

There is no rating upside, as the ratings are already at the highest point on the National Rating scale.

OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS

The ratings on the bank's rupiah-denominated senior unsecured bonds are at the same level as its National Long-Term Rating, in accordance with Fitch criteria. Indonesia does not have a sophisticated resolution framework and we believe the bonds have average recovery prospects.

OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES

A change of BTPN's National Long-Term Rating would lead to a corresponding change of the issue ratings.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS

BTPN's ratings are credit-linked to SMBC's Long-Term IDR, based on our expectation of extraordinary shareholder support.

PARTICIPATION STATUS

The rated entity (and/or its agents) or, in the case of structured finance, one or more of the transaction parties participated in the rating process except that the following issuer(s), if any, did not participate in the rating process, or provide additional information, beyond the issuer’s available public disclosure.