Fitch Rates Indonesia's Woori Saudara 'AAA(idn)'; Outlook Stable
OREANDA-NEWS. Fitch Ratings Indonesia has assigned PT Bank Woori Saudara Indonesia 1906, Tbk (BWS) a National Long-Term Rating of 'AAA(idn)' and a National Short-Term Rating of 'F1+(idn)'. The Outlook is Stable.
AAA' National Ratings denote the highest rating assigned by Fitch on 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.
'F1' National Ratings indicate the strongest capacity for timely payment of financial commitments relative to other issuers or obligations in the same country. On Fitch's National Rating scale, this rating is assigned to the lowest default risk relative to others in the same country. Where the liquidity profile is particularly strong, a "+" is added to the assigned rating.
KEY RATING DRIVERS
The ratings on BWS are based on Fitch's assessment of a high propensity of support, should it be needed, from its Korean-based parent, Woori Bank (A-/Stable). Fitch assesses BWS as strategically important to the Korean bank given the parent owns 74.0% of the subsidiary, name association between the two, technical assistance from the parent in risk management, liquidity assistance to the subsidiary and appointment of key Woori Bank personnel to BWS's management board. BWS is important to its parent's goal of developing business growth in emerging Asian countries, particularly Indonesia. Nevertheless, reputational risk would probably be containable for Woori Bank if BWS were to default given its small relative size.
BWS mainly operates in the consumer and corporate segments. Consumer loans are primarily extended to pensioners with corporate loans mainly advanced to Korean companies in Indonesia, a niche market. Our assessment reflects the expectation that BWS will expand its domestic businesses and step up lending to the local corporate and commercial segments in the short to medium term to reduce its reliance on Korean corporate and pension lending. Fitch expects the bank to rely on loans from its majority shareholder to support funding, though to a lesser degree than peers. The bank's capital position is satisfactory, but this is mainly underpinned by capital support from its parent as its internal capital generation is weak.
BWS maintained satisfactory asset quality in 1Q16, even though it expanded its loan book aggressively in the past few years. BWS's profitability was modest in 1Q16 and Fitch believes that profitability pressure is likely to continue amid heightened competition in the pension loans segment. BWS's 91.4% loan to deposit ratio (LDR) was slightly higher than the industry average of 89.6% at end-1Q16, but it compares favourably against other foreign-owned corporate banks operating in Indonesia, which typically have LDR well in excess of 100%, due to those banks' limited distribution networks.
RATING SENSITIVITIES
A multi-notch downgrade of the parent's rating could have an impact on the bank's rating. In addition, a significant perceived weakening of Woori Bank's propensity to support its subsidiary including, but not limited to, a significant dilution in ownership, could exert downward pressure on BWS's National Ratings. There is no ratings upside as the ratings are already at the top of the scale.
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