RAM Ratings Sees Promising Growth Prospects for Indonesian Banks

AsiaNet 52676

KUALA LUMPUR, Malaysia, Apr. 9, 2013 (ANTARA/Bernama-AsiaNet) --

     “Indonesian banks have promising growth prospects given the country’s robust GDP growth and low banking penetration rate. Underpinned by strong domestic consumption and foreign direct investments, Indonesia posted a 6.2% GDP growth in 2012 despite the weak global economy. When it comes to banking, there is ample room for growth as Indonesia is still largely under-penetrated. The ratio of domestic credit extended to the private sector to GDP only comes up to 31.7%, in contrast to more than 100% for Singapore, Malaysia and Thailand,” observed Wong Yin Ching, Co-Head of Financial Institution Ratings at RAM Rating Services Berhad, upon the release of the rating agency’s publication, Leading ASEAN Banks.  

     Sophia Lee, Co-Head of Financial Institution Ratings, adds, “The Indonesian banking system boasts the strongest profitability among the 5 leading ASEAN countries (Singapore, Malaysia, Thailand, Indonesia and the Philippines), with a return on assets of above 3% that is driven by broad interest margins. On top of that, the banking system has robust loan-loss coverage and capitalisation levels.”

     “Our assessment of the top 4 Indonesian banks by assets – PT Bank Mandiri (Persero) Tbk, PT Bank Rakyat Indonesia (Persero) Tbk, PT Bank Central Asia Tbk and PT Bank Negara Indonesia (Persero) Tbk - concludes that their strengths lie in their strong profitability and capitalisation levels, which are among the highest in the region. We expect these institutions’ capitalisation levels to remain robust in the near to medium term, supported by their strong ability to generate internal capital and the recent implementation of stricter minimum capital requirements by Bank Indonesia,” Sophia elaborated.

     “Indonesia has been experiencing strong loan growth of more than 20% per annum in the last 3 years. Overall, its banking system’s asset quality is holding up well. Although the banks’ rapid loan growth and the Indonesian government’s recent push to gradually increase the banks’ exposures to micro, small and medium-sized enterprises to at least 20% of their loans over a 6-year period may lead to an uptick in non-performing loans, the system has a strong buffer against loan losses,” Yin Ching commented.

     “The sheer number of banks in Indonesia also presents supervisory challenges. Apart from 120 commercial banks, there are 1,667 rural banks serving small communities. Stacked against its regional peers, Indonesia’s regulatory environment and legal system are still evolving and undergoing continual reforms to support its rapidly expanding banking industry,” Sophia concluded.

     Click here to download Leading ASEAN Banks.

     The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings.

     RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.

     Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.

     Published by RAM Rating Services Berhad
     © Copyright 2013 by RAM Rating Services Berhad

     SOURCE : RAM Rating Services Berhad

     Media contact
     Name   : Sophia Lee
     Tel    : (603) 7628 1189
     E-mail : sophia@ram.com.my