OREANDA-NEWS. Fitch Ratings Indonesia has affirmed the National Ratings of three foreign-owned banks in Indonesia:

- PT Bank Commonwealth (PTBC),
- PT Bank ANZ Indonesia (ANZI), and
- PT Bank Permata Tbk (Permata).

A list of full rating actions is provided at the end of this commentary.

The affirmation of the National Long-Term Ratings reflects Fitch's view that support from and linkages with the banks' parents remain unchanged.

'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 National Ratings are driven by Fitch's view of a high propensity of timely support from the banks' higher-rated foreign parents, should it be needed. Fitch believes that the banks are strategically important subsidiaries of the parents.

PTBC is 99% owned by Commonwealth Bank of Australia (CBA, AA-/Stable) and ANZI is 99% owned by Australia & New Zealand Banking Group (ANZ, AA-/Stable). Permata, the seventh-largest bank by assets in Indonesia, is 44.56% owned by Standard Chartered Bank (SCB, AA-/Negative).

Fitch's view of support for ANZ and PTBC is reinforced by the large potential for damage to the parents' reputations if they were to default, the strong synergies between parents and subsidiaries manifested by alignment in key areas (operational, risk management, and key personnel), shared names, and the parents' majority ownership and sizeable capability to provide support in times of need.

In Permata's case, Fitch's view of support stems from its parent's significant ownership in the subsidiary, appointment of key personnel, the subsidiary's ability to benefit from the parent's risk management and business best practices, and the subsidiary's role in strengthening the parent's presence in a wider range of segments in the Indonesian market.

Weak operating conditions, with high interest rates, slower economic growth, pressure on the Indonesian rupiah and protracted weakness in commodity prices has resulted in the banks' average NPL ratio rising to 2.3% at end-1H15 from 1.8% at end-2014. The deterioration in asset quality was evident across all industries, with the average special-mention loan ratio rising to 5.3% at end-1H15 (2014: 3.1%), which highlights the risk of a further increase in NPL ratios if economic conditions were to worsen.

Fitch expects worsening asset quality to continue to depress the three banks' earnings growth. The banks' profitability may also come under pressure from a rise in funding cost, which would stem from the high interest-rate environment and tough competition with larger banks to acquire deposits, which are a lower-cost of funding.

Capitalisation is likely to remain satisfactory for the three banks throughout 2015 and 2016 as Fitch expects loan growth to remain restrained in the near to medium term. Fitch also believes that capital support from parents will be forthcoming in case of need.

RATING SENSITIVITIES

Downward rating pressure may arise from a perceived weakening of support from the banks' parents, including from major changes to ownership or a significant weakening in their parents' financial strength, although Fitch believes this to be a remote prospect in the near to medium term. The ratings are already at the highest end of the National Ratings scale.

The full list of rating actions is as follows:

PT Bank Commonwealth
- National Long-Term Rating affirmed at 'AAA(idn)'; Outlook Stable
- National Short-Term Rating affirmed at 'F1+(idn)'

PT Bank ANZ Indonesia
- National Long-Term Rating affirmed at 'AAA(idn)'; Outlook Stable
- National Short-Term Rating affirmed at 'F1+(idn)'

PT Bank Permata Tbk
- National Long-Term Rating affirmed at 'AAA(idn)'; Outlook Stable
- National Short-Term Rating affirmed at 'F1+(idn)'.