(The following statement was released by the rating agency)
Dec 13 -
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Summary analysis -- PT Bank Danamon Indonesia Tbk. ---------------- 13-Dec-2012
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CREDIT RATING: BB/Positive/B Country: Indonesia
Primary SIC: Commercial banks,
nec
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Credit Rating History:
Local currency Foreign currency
21-Apr-2011 BB/B BB/B
03-Nov-2005 BB-/B BB-/B
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Ratings Score Snapshot
Issuer Credit Rating BB/Positive/B
SACP bb
Anchor bb
Business Position Strong (+1)
Capital and Earnings Adequate (0)
Risk Position Moderate (-1)
Funding and Liquidity Average
and Adequate (0)
Support 0
GRE Support 0
Group Support 0
Sovereign Support 0
Additional Factors 0
Outlook
The positive outlook reflects our expectation that Danamon could benefit from
parent group support if DBS Group Holdings Ltd. (DBSGH; not rated) acquires a
majority stake in the bank. DBSGH is the parent of DBS Bank Ltd.
(AA-/Stable/A-1+; axAAA/axA-1+). DBSGH announced a proposal to acquire Danamon
in April 2012. The transaction is still pending regulatory approval. We expect
Danamon to largely maintain its SACP in the coming 12-18 months.
We could upgrade the bank if it becomes a strategically important member of
the DBS Group. We could also upgrade the bank if we believe its risk-adjusted
capital ratio will stay above 10% over a medium term.
We could revise the outlook to stable if we no longer believe that the
proposed acquisition is likely to proceed.
Rationale
The ratings on PT Bank Danamon Indonesia Tbk. reflect the bank's "strong"
business position, "adequate" capital and earnings, "moderate" risk position,
"average" funding, and "adequate" liquidity, as defined under our criteria,
with an anchor at 'bb' for a bank operating only in Indonesia. The stand-alone
credit profile (SACP) of Danamon is 'bb'.
Our 'bb' anchor for Danamon draws on our Banking Industry Country Risk
Assessment (BICRA) methodology and our view of the economic and industry risks
in the countries where the bank operates. The BICRA score for Indonesia is
informed by our evaluation of the country's economic risk; we view Indonesia
as a low-income economy, with development constrained by infrastructure
shortfalls, legal uncertainties, corruption, and labor market rigidities.
Economic imbalances appear mild, but credit risk in the economy stems from a
weak debt capacity, and significant weaknesses in payment culture and rule of
law. In terms of industry risk, the banking industry in Indonesia operates
within a weak institutional framework with a weak regulatory track record.
However, the industry is supported by a strong customer deposit base, and risk
appetite is generally moderate.
We assess Danamon's business position as "strong," on the basis of the bank's
well-established and recognized franchise, specialized risk-management
expertise, and extensive network in the mass market small loans domain. The
bank's subsidiary, Adira Finance, is a market leader in the auto finance
business. Danamon has demonstrated resilient revenue stability over the past
few years. We expect that the bank's medium-term growth will come largely from
high-yield sectors of the economy, with pricing sufficiently high to cover the
latent credit risk and high operational costs.
We consider the bank's capital and earnings "adequate." In our view, the
impact of continuous strong loan growth on capitalization will be partially
offset by profit generation and retention. We expect the bank's risk-adjusted
capital ratio to decline from its currently strong level to slightly below 10%
in the next one to two years. We also expect the bank to maintain a simple
capital structure.
We assess Danamon's risk position as "moderate." Considering the bank's
substantial loan exposure to high-yield sectors in Indonesia, we expect its
overall credit costs to remain fairly high. While the bank's loan growth has
been above the industry average in recent years, we expect it to slow to a
rate largely in line with that of the industry. We classify the bank's
business model and risk exposures as simple.
We consider Danamon's funding to be "average" and its liquidity "adequate."
The bank's above-industry-average loan-to-deposit ratio is supplemented by the
equity funding of a relatively high portion of its balance sheet. We expect
the bank to maintain sufficient liquid assets to meet its short-term liquidity
needs.
The counterparty credit rating on Danamon is at the same level as the bank's
SACP. We consider Danamon to have "moderate" systemic importance in Indonesia,
and we classify the government as "highly supportive" toward the country's
banking sector. However, we factor no uplift into our ratings on Danamon to
reflect this, as the bank's SACP is already close to the sovereign ratings on
Indonesia (BB+/Positive/B; axBBB+/axA-2).
Related Criteria And Research
-- Banking Industry Country Risk Assessment: Indonesia, June, 1, 2012
-- PT Bank Danamon Indonesia Outlook Revised To Positive On Potential
Integration Into DBS Group; 'BB/B' Ratings Affirmed, April 3, 2012
-- Banks: Rating Methodology And Assumptions, Nov. 9, 2011
-- Group Rating Methodology And Assumptions, Nov. 9, 2011
-- Banking Industry Country Risk Assessment Methodology And Assumptions,
Nov. 9, 2011
-- Bank Capital Methodology And Assumptions, Dec. 6, 2010
Source: http://news.yahoo.com/text-p-summary-pt-bank-danamon-indonesia-tbk-110410912--sector.html
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