OREANDA-NEWS. Fitch Ratings has affirmed the ratings on four Indonesian state-owned banks - PT Bank Mandiri (Persero) Tbk (Mandiri), PT Bank Rakyat Indonesia (Persero) Tbk (BRI), PT Bank Negara Indonesia Tbk (BNI) and PT Bank Tabungan Negara (Persero) Tbk (BTN).The rating Outlooks are Stable. A full list of rating actions is provided at the end of this commentary.

'AAA(idn)' National Long-Term Ratings denote the highest ratings 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.

'AA(idn)' National Long-Term Ratings denote expectations of very low default risk relative to other issuers or obligations in the same country. The default risk inherently differs only slightly from that of the country's highest rated issuers or obligations.

'F1(idn)' 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. Where the liquidity profile is particularly strong, a "+" is added to the assigned rating.

KEY RATING DRIVERS

IDRS, NATIONAL RATINGS, SUPPORT RATINGS AND SUPPORT RATING FLOORS
The state-owned banks' IDRs, National Ratings, Support Ratings (SRs) and Support Rating Floors (SRFs) reflect the high probability they would continue to receive state support in times of need. This is based on the banks' systemic importance in the Indonesian economy, their policy roles - especially in the case of BTN - as well as the government's majority ownership in each of them. The four banks together accounted for about 39% of system assets at end-1H15. BNI's and BTN's National Long-Term Ratings are lower than those of Mandiri and BRI to reflect Fitch's view of their lower systemic importance.

VIABILITY RATINGS
The Viability Ratings (VRs) of Mandiri, BRI and BNI consider the sub-investment grade operating environment for banks in Indonesia that constrains the standalone credit profiles of major banks in the country. Banks in Indonesia face cyclical challenges arising from the continued weakness in global commodity markets and the renewed market volatility surrounding China's economic slowdown. Nevertheless, the banks' credit profiles, which have been enhanced since the late 1980s through several cycles, are likely to allow them to be resilient in the current cyclical downturn.

Mandiri's VR of 'bb+' reflects a profitability that is above its peers', relatively stable asset quality and adequate capitalisation. Credit costs will rise and pressure its profitability in 2015-2016; but Fitch expects the level of profitability and provision coverage to remain sufficient to absorb potential credit losses.

BRI's VR of 'bb+' reflects a profitability that is better than that of its peers and a strong capital position. Its asset quality is likely to weaken, but remain manageable due to its strong credit fundamentals, which are underpinned by its diversified credit exposures. BRI's focus on micro businesses helps it to generate strong margins.

BNI's VR of 'bb+' reflects satisfactory capitalisation and profitability, which are counterbalanced by its weakened asset quality. In Fitch's view, BNI's management execution is weaker than that of Mandiri and BRI, which can be seen in the sharper deterioration of its asset quality in 1H15. This was due largely to weakening in the repayment ability of borrowers from the mining sector. Fitch believes asset quality will continue to be under pressure and negatively impact profitability. However, Fitch expects Tier 1 capital to remain adequate as the bank manages down its growth to preserve its capital.

Mandiri is the largest bank in Indonesia, and accounted for about 15% of system assets at end-1H15. BRI is the second-largest bank with 14% of system assets. It has the most extensive distribution network in Indonesia and a unchallenged franchise in rural micro-lending. BNI is the fourth-largest bank with 7% of system assets. BTN is the 10th-largest bank in Indonesia with 2.6% of system assets and it focuses on mortgage lending.

SENIOR DEBT
The banks' rupiah and foreign-currency denominated senior bonds and bond programmes are rated at the same levels as their IDRs and their National Long-Term and Short-Term Ratings, in accordance with Fitch's rating criteria.

RATING SENSITIVITIES

IDRS, NATIONAL RATINGS, SUPPORT RATINGS AND SUPPORT RATING FLOORS
Changes to Indonesia's sovereign rating (BBB-/Stable) may lead to corresponding changes to the banks' ratings. Deterioration in the state-owned banks' standalone financial profiles is unlikely to impact their IDRs and National Rating unless the factors underpinning state support also weaken. A change in the government's ability and willingness to provide extraordinary support would also affect these banks' IDRs, National Ratings, SRs and SRFs.

VIABILITY RATINGS
Rating upside on the VRs may result from fundamental improvements in the operating environment, including in the capital markets and the economy, better corporate governance, and a more visible improvement in their risk management culture. Rating downside may result from significant asset-quality deterioration and weakened loss-absorption buffers, particularly in a sharp protracted downturn.

SENIOR DEBT
Any changes in the IDRs, National Long-Term and Short-Term Ratings would affect the ratings on the banks' rupiah and foreign-currency denominated senior bonds and bond programmes.

The full list of rating actions is as follows:
Mandiri:
- Long-Term Foreign-Currency IDR affirmed at 'BBB-'; Outlook Stable
- Long-Term Local-Currency IDR affirmed at 'BBB-'; Outlook Stable
- Short-Term Foreign-Currency IDR affirmed at 'F3'
- Support Rating Floor affirmed at 'BBB-'
- Support Rating affirmed at '2'
- Viability Rating affirmed at 'bb+'
- National Long-Term Rating affirmed at 'AAA(idn)'; Outlook Stable
- National Short-Term Rating affirmed at F1+(idn)'

BRI:
- Long-Term Foreign-Currency IDR affirmed at 'BBB-'; Outlook Stable
- Short-Term Foreign-Currency IDR affirmed at 'F3'
- Support Rating Floor affirmed at 'BBB-'
- Support Rating affirmed at '2'
- Viability Rating affirmed at 'bb+'
- National Long-Term Rating affirmed at 'AAA(idn)'; Outlook Stable
- National Short-Term Rating affirmed at F1+(idn)
- Senior unsecured bond affirmed at 'BBB-'
- Medium-term notes affirmed at 'AAA(idn)' and 'F1+(idn)'

BNI:
- Long-Term Foreign-Currency affirmed at 'BBB-'; Outlook Stable
- Long-Term Local-Currency IDR affirmed at 'BBB-'; Outlook Stable
- Short-Term Foreign-Currency IDR affirmed at 'F3'
- Support Rating Floor affirmed at 'BBB-'
- Support Rating affirmed at '2'
- Viability Rating affirmed at 'bb+'
- National Long-Term Rating affirmed at 'AA+(idn)'; Outlook Stable
- National Short-Term Rating affirmed at F1+(idn)'
- Senior unsecured bond affirmed at 'BBB-'

BTN
- National Long-Term Rating affirmed at 'AA(idn)'; Outlook Stable
- National Short-Term Rating affirmed at 'F1+(idn)'
- Rupiah senior bond affirmed at 'AA(idn)'
- Rupiah senior bond programme affirmed at 'AA(idn)'