PT BANK RAKYAT INDONESIA (PERSERO) TBK
Fitch Ratings has upgraded state-owned
At the same time, Fitch Ratings Indonesia has upgraded BRI's National Long-Term Rating to '
The rating actions reflect Fitch's reassessment of the government's propensity to support the bank, given the bank's more prominent role in supporting a government programme after its appointment as the holding company for state-owned ultra-micro lenders in 2021, which further entrenched its long-standing role in developing
'
'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. Where the liquidity profile is particularly strong, a '+' is added to the assigned rating.
Key Rating Drivers
Government Support Underpins Rating: BRI's Long-Term IDR is underpinned by Fitch's belief of a high probability that extraordinary government support will be forthcoming, if required. The assessment is based on BRI's systemic importance as the second-largest commercial bank in
High Support Ability: Fitch believes the government of
High Support Propensity: BRI's GSR reflects Fitch's expectation of the government's increasing propensity to provide extraordinary support to BRI, if needed. This is based on the government's emphasis on developing the MSME sector, exemplified by supportive regulations and a rising budget allocation to the government-sponsored MSME lending programme known as KUR. BRI is also spearheading the government's financial inclusion targets and distribution of social security benefits due to its extensive distribution network, which we believe would be very difficult to replace.
Stable Operating Environment Outlook: Fitch expects the operating environment (OE) for Indonesian banks to be stable in the near future, as GDP growth is likely to be resilient in 2023 and 2024, which should support the industry's loan demand and asset quality. We have maintained the OE score at 'bb+' with a stable outlook. The OE score is higher than the implied score in the 'b' category due to a positive adjustment for
Strong Indonesian Franchise: BRI's business profile is assessed at 'bbb', in line with its implied score, reflecting its robust domestic franchise, signified by its market-leading operating income and very high market share in its core operating segment of MSME lending. This is complemented by adequate revenue diversification and management quality that is comparable with that of most of its large bank peers.
Improving Asset-Quality Metrics: Fitch expects BRI's reported non-performing loan (NPL) ratio to improve gradually, helped by the selective extension of regulatory forbearance and healthy - albeit moderating - economic growth. Our assessment of BRI's asset-quality score of 'bb' also considers the bank's high loan-loss allowance (LLA) coverage, which covers 279% of its NPLs and 46% of loans at risk (LAR) as of
Sustained Profitability Recovery: Fitch believes BRI's profitability will benefit from high loan growth and lower credit costs given our expectations for asset-quality improvement and adequate LLA coverage. We expect pressure on BRI's net interest margin from rising interest rates to be partly offset by increasing lending yields due to continued expansion into micro lending.
BRI's earnings and profitability score is maintained at 'bb+', in line with the implied score, with the outlook revised to positive from stable due to our expectations of a higher operating profit to risk-weighted asset ratio in the next 12-18 months.
Satisfactory Capital Buffers: BRI's common equity Tier 1 ratio of 25.1% provides the bank with a satisfactory buffer against potential asset-quality deterioration. We expect high loan growth to gradually erode capital and BRI to continue paying large dividends as it seeks to achieve better returns on capital. However, Fitch expects BRI to maintain higher capitalisation than its large bank peers. We have maintained BRI's capitalisation and leverage score at 'bbb-' with a stable outlook.
Stable Funding Profile: Fitch expects BRI to maintain satisfactory liquidity at reasonable costs to support the group's operations. BRI's funding and liquidity score of 'bbb-' is assigned above its implied score and reflects Fitch's view of its deposit franchise that is comparable with that of other large domestic banks. We have used its deposit structure to adjust the score, given our belief that BRI's granular deposit structure and relatively cheap cost of deposits confer a competitive advantage.
Rating Sensitivities
Factors that could, individually or collectively, lead to negative rating action/downgrade:
A downgrade of
BRI's Viability Rating (VR) could be downgraded if its financial profile deteriorates materially, which could result from a simultaneous and/or multi-notch downgrade in its key rating drivers. This would most likely happen if we lower the OE score for
Factors that could, individually or collectively, lead to positive rating action/upgrade:
An upgrade of
Positive action on BRI's VR would most likely result from an improvement in the bank's asset quality, such that we believe its NPL ratio can be sustained below 2% and supplemented by improvements in other asset-quality metrics, such as loans at risk, or restructured loans, to total loans. A positive revision on the OE score may also result in an upgrade of BRI's VR.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
BRI's foreign currency-denominated senior unsecured bonds are rated at the same level as its Long-Term IDR in accordance with Fitch's Bank Rating Criteria, as the bonds constitute its direct, unsubordinated and senior unsecured obligations and rank equally with all its other senior unsecured obligations, and the risk of default of these obligations is aligned with that of BRI.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
A downgrade of BRI's IDR would lead to a corresponding downgrade of the issue ratings.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
An upgrade of BRI's IDR would lead to a corresponding upgrade of the issue ratings.
VR ADJUSTMENTS
The VR has been assigned below the implied VR due to the following adjustment reason(s): weakest link - asset quality (negative)
The OE score of 'bb+' has been assigned above the 'b' category implied score on the following adjustment reason: sovereign rating (positive)
The funding and liquidity score of 'bbb-' has been assigned above the 'bb' category implied score on the following adjustment reason: deposit structure (positive)
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
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
BRI's IDRs and GSR are driven by our expectation of extraordinary sovereign support and are credit-linked to
ESG Considerations
BRI has an ESG Relevance Score of '3' for Human Rights, Community Relations, Access and Affordability, which differs from the standard score for financial institutions of '2'. This reflects BRI's exposure to underbanked and underserved communities, which is credit relevant to the bank, but has very little impact on its rating.
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
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