JAKARTA: Fitch Ratings has changed the outlook on several large Indonesian banks to “negative” while affirming their current ratings, following its recent downward revision of the country’s sovereign rating outlook.
In separate reports released on Monday, the credit rating agency said the revisions affected a range of lenders, including both state-owned and private local banks as well as foreign-owned banks operating in Indonesia.
The rating action comes just days after Fitch revised the outlook on Indonesia’s sovereign credit rating to “negative” while affirming the country’s long-term foreign-currency issuer default rating (IDR) at BBB on March 4.
According to the credit rating provider, the changes to the outlooks reflect banks’ exposure to the same operating environment and credit conditions as the sovereign.
Among state-owned lenders, Fitch revised the outlooks to “negative” for Bank Mandiri, Bank Rakyat Indonesia (BRI), Bank Negara Indonesia (BNI) and Indonesia Eximbank.
“The government’s ability to provide support has diminished, as reflected in the ‘negative’ outlook on the sovereign rating.
“Consequently, the outlooks on the long-term IDRs of Mandiri, BRI, BNI and Indo Eximbank, which are driven by their (government support ratings), have been revised to ‘negative’ to mirror that on the sovereign rating,” the report said.
The firm also revised its outlook on Bank Central Asia (BCA) to “negative” while affirming the private lenders’ long-term issuer default rating at BBB.
Fitch said BCA continued to demonstrate strong financial metrics, including robust profitability, sound asset quality and solid liquidity supported by a large base of low-cost deposits.
However, it noted that the bank’s rating was still influenced by the sovereign rating and the operating environment in Indonesia.
In a separate report, Fitch affirmed the ratings of three foreign-owned banks operating in Indonesia, namely Bank Danamon Indonesia, Bank KB Indonesia and Bank OCBC NISP, while revising their outlooks to “negative”.
“In response to Fitch’s release on the revision of BCA’s rating outlook, BCA remains committed to focusing on its business fundamentals to create sustainable value for shareholders and stakeholders,” the lender told The Jakarta Post in a written statement on Tuesday.
Bank Mandiri was not immediately able to comment.
Paramadina University economist Wijayanto Samirin said the outlook revisions on Indonesian banks reflected the “sovereign ceiling” principle in credit ratings, where corporate ratings generally do not exceed a country’s sovereign rating.
“When Fitch lowered the outlook on Indonesia’s rating, the outlook for corporate ratings in Indonesia, including banks, also declined,” he told the The Jakarta Post on Tuesday.
According to him, the downgrade in outlook means banks may be perceived as carrying higher business risks, which could affect their market valuations and funding costs.
“As a consequence, the banks’ shares and bond prices could fall. Bond yields and deposit rates could increase, raising banks’ cost of funds and potentially leading to higher lending rates.”
However, he said the overall impact in Indonesia is likely to be limited, adding that the revision affected only the outlooks, not the ratings themselves.
He pointed out that Indonesia’s banking sector is largely domestically oriented, meaning domestic investors and depositors tended to be less sensitive than foreign investors. In addition, banks operated in an environment with high net interest margins, which provided a buffer against financial pressures.
Wijayanto added that banks’ capital buffers remained strong with a capital adequacy ratio around 26%, far above the Basel minimum requirement of 8% and the effective regulatory requirement of around 14% after buffers.
Meanwhile, University of Indonesia economist Telisa Falianty said the negative outlook revisions by Fitch could have implications for Indonesian banks beyond bond issuance, potentially affecting both funding conditions and market sentiment.
“It will affect their bond issuance, because it is related to the sovereign rating, but it will also affect share prices,” she told the The Jakarta Post on Tuesday.
According to Telisa, investor concerns had already emerged before the latest outlook revisions. — The Jakarta Post/ANN
