JAKARTA/SINGAPORE, December 12 (Fitch) Fitch Ratings has upgraded PT Bank Syariah Mandiri's (BSM) National Long-Term rating to 'AA+(idn)' from 'AA(idn)'. The Outlook is Stable.
Its subordinated bond I/2007 has also been upgraded to 'AA(idn)' from 'AA-(idn)'. At the same time, the agency has assigned BSM's proposed Islamic subordinated bond totalling up to IDR500bn with a maturity of up to 10 years a 'AA(idn)' rating. (source)
The Islamic subordinated bond I/2007 and the proposed Islamic subordinated bond 2011 are rated a notch below the National Long-Term rating to reflect their non-deferral features. The upgrade of BSM's National Long-Term rating is driven by stronger integration in risk management between BSM and its parent, PT Bank Mandiri (Persero) Tbk (Bank Mandiri; 'BB+'/ Positive), in line with a new regulatory requirement by the Central Bank of Indonesia, and continued commitment of capital injection from Bank Mandiri.
The Stable Outlook is underpinned by Fitch's expectations that the propensity of support from Bank Mandiri is unlikely to change given its full ownership over BSM, the common brand name, and ongoing technical and financial assistance to grow BSM's sharia banking business. Any change in the parent's rating or support may have a similar impact on BSM's ratings.
Bank Mandiri's financial assistance to BSM is proven by a continuous capital injection scheme totalling IDR1.3trn for 2011-2013. So far the capital disbursed amounted to IDR100bn in June 2008, IDR100bn in January 2009 and IDR200bn in March 2011. A further IDR300bn is expected to be injected in December 2011. Hence, Fitch believes that BSM will be able to meet its capital adequacy ratio (CAR) at the regulatory minimum 12% from 2012 onwards.
Fitch also draws comfort from the 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 difficulties.
BSM's net profit increased to IDR409bn in Q311 (Q310: IDR 320bn), driven by robust financing growth, higher financing yields and a satisfactory deposit mix. Asset quality improved with the non-performing loan ratio having fallen to 3.1% at end-Q311 (2010: 3.5%) due to tighter lending criteria, increased collections, loan restructuring and write-offs and more favourable economic conditions. Provision cover, although lower than the average of its larger peers (160%), remained satisfactory at 104% at end-Q311 (end-2010: 131%). The bank's Tier-1 and total CAR increased to 9.1% and 11.1% at end-Q311, respectively (2010: 8.4% and 10.6%).
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