Fitch Affirms Indonesia’s Bank OCBC NISP At ‘BBB’; Outlook Stable

Fitch Ratings has affirmed PT Bank OCBC NISP Tbk’s (OCBC NISP) Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at ‘BBB’ with Stable Outlook.

The ratings reflect continued support and commitment from its financially strong parent bank, Oversea-Chinese Banking Corp (OCBC, ‘AA-‘/Stable). In Fitch’s view, OCBC’s commitment to OCBC NISP is reflected in its 85.06% ownership, capital support, name association and operational alignment in most key areas such as risk management and IT services.
OCBC NISP’s Viability Rating of ‘bb’ reflects its medium size, consistent asset quality, and satisfactory capital position despite its lower profitability compared with peers.

Any change in support from OCBC would have an impact on OCBC NISP’s ratings. In addition, any rapid loan growth that affects the bank’s asset quality and/or capital position could put pressure on its Viability Rating, particularly if the economic environment were to deteriorate.

OCBC NISP’s profitability has been pressured by tight competition, as net interest margin (NIM) decreased to 4.3% at end-2011 (2010: 4.8%). However, its return on assets (ROA) increased to 1.4% at end-2011 (0.9%) on the back of higher-earning assets and lower provisioning charges as a result of improved asset quality. Fitch, nevertheless, notes that continued tight competition might pressure the bank’s profitability over the medium term.

The bank’s Tier-1 and total capital adequacy ratio (CAR) decreased to 11% and 13.75% at end-2011 (2010: 14.1%, 17.6%) respectively, although the latter remains well above the regulatory total minimum of 8%. The deterioration in capital levels was mainly due to loan growth and full implementation of operational risk guidelines in accordance to Basel II. The bank’s recent rights issue of IDR1.5 trn should, however, maintain its CAR above 12% in the medium term and aid loan growth.

Non-performing loans (NPL) declined to 1.3% of gross loans in 2011 from 2% in 2010. The lower NPL ratio was due to improved asset quality in corporate and commercial/SMEs amid more favorable economic conditions. Provision cover, remained satisfactory at 159% at end-March 2011 (end-2010: 99%).

Established in 1941, OCBC NISP was previously owned by the Surjaudaja family, and weathered the 1997-1998 Asian crisis without a state bailout.