RATINGS - Fitch Upgrades Bank Syariah Mandiri's National Rating to AA(idn)

Theindonesiatoday.com - Fitch Ratings has today upgraded PT Bank Syariah Mandiri's (BSM) National Long-term rating to 'AA(idn)' from 'AA-(idn)', and its subordinated Islamic bond I/2007 to 'AA-(idn)' from 'A+(idn)'. 

The outlook is Stable. The Islamic bond I/2007 is rated a notch below its National Long-term rating to reflect its subordinated status and non-deferral features.

The upgrade of BSM's National Long-term rating is driven by continued strong support from its parent, state-owned PT Bank Mandiri (Persero) Tbk (Bank Mandiri; Long-term Issuer Default rating: 'BB+'; National Long-term rating: 'AAA(idn)'/Outlook Stable). The Stable Outlook on BSM is underpinned by the propensity of support from Bank Mandiri as unlikely to change (in view of its full ownership of BSM), name sharing and on-going technical and financial assistance to develop the latter's sharia banking business.

BSM's ratings are underpinned by Fitch's expectation that support from Bank Mandiri will be maintained, despite the former's still developing franchise, improving, but fairly volatile earnings, and moderate levels of asset quality and capital. The agency may downgrade BSM's National rating by several notches if there are indications that support from Bank Mandiri will weaken.

Bank Mandiri's financial assistance to BSM is evident from its capital injections, which include IDR200bn over 2008-2009, and an additional IDR400bn in 2011 which should maintain BSM's total CAR at 12% (end-9M10: 11.5%). Fitch derives comfort from the existence of cross default clauses in Bank Mandiri's offshore borrowings to support its subsidiary, and its written commitment to the central bank to support BSM, in the event of financial difficulty.

BSM's 9M10 net profit increased to IDR320bn (end-9M09: IDR198.3bn), driven by robust financing growth, higher financing yields, and a satisfactory deposit mix, which offset the bank's still high non-performing financing (NPF) ratio; the NPF ratio at 9M10 was 4.2% after peaking at 5.9% a year earlier, but was above the conventional banks' average of 2.8%. NPFs fell due to collections, restructuring and account upgrades amid generally healthy economic conditions. To protect against potential credit deterioration, BSM raised its provision cover to 117.5% at end-9M10 (end-9M09: 89%). The bank intends to continue expanding its Micro, Small & Medium Enterprise financing portfolio to lower the concentration risk associated with corporate financing, as well as to improve overall asset quality. BSM is targeting financing growth of 37.6% in 2011 with a focus on micro/SME borrowers.

At end-9M10, Tier 1 CAR fell to 9.2% from 10.7% at end-9M09, while total CAR was 11.5% (end-9M09: 13.3%) from strong financing growth. Nevertheless, Fitch notes this will be mitigated by the planned capital injections.

BSM started business as a sharia bank in 1999. (Theindonesiatoday.com)

Source : http://theindonesiatoday.com/banking-headline/6707-fitch-upgrades-bank-syariah-mandiris-national-rating-to-aaidn.html - Jan 13, 2011