F

itch Ratings has affirmed the ratings of Indonesia-based PT Bank Central Asia Tbk (BCA), PT Bank Danamon Tbk (Danamon) and PT Bank Pan Indonesia Tbk (Panin), giving each stable rating outlooks.

Fitch has also assigned National Short-Term Ratings of '€œF1+(idn)'€ to BCA and Danamon, a Short-Term Issuer Default Rating (IDR) of '€œB'€ to Panin and Support Rating Floor of '€œBB'€ to Danamon. A full list of rating actions is provided at the end of this commentary.

'€œAAA(idn)'€ Long-Term National Ratings denote the highest ratings assigned by Fitch on its national rating scale for a country. This rating is assigned to issuers or obligations with the lowest expectation of default risk relative to all other issuers or obligations in the same country, Fitch said in a statement.

'€œAA(idn)'€ Long-Term National Ratings denote expectations of very low default risk relative to other issuers or obligations in the same country. The default risk inherently differs only slightly from that of the country'€™s highest-rated issuers or obligations.

'€œF1(idn)'€ Short-Term National Ratings indicate the strongest capacity for timely payment of financial commitments relative to other issuers or obligations in the same country.

BCA'€™s IDRs (rupiah), Viability Ratings (VRs) and National Ratings reflect Fitch'€™s view that its strong credit fundamentals will continue to be underpinned by its business model that focuses on low-risk transactional banking and will remain comparable with higher rated peers in emerging markets over the medium term. However, the credit profile is constrained by BCA'€™s operating environment.

Danamon'€™s IDRs, VRs and National Ratings reflect its strong capital profile (FCC ratio at 19 percent at end of quarter one, 2014) and satisfactory profitability and its relatively weaker funding profile. The bank'€™s loan-to-deposit ratio remains high and well above the industry average.

The bank'€™s focus on mass-market lending results in non-performing loan (NPL) ratios that are higher than the industry average, but this is mitigated by its strong interest margins. Fitch expects the bank'€™s profitability to moderate from a high base, given an expected rise in funding and credit costs and slower growth in mass-market loans.

Panin'€™s IDRs, VRs and National Ratings reflect declining and below-average capitalization, moderate asset quality and modest earnings compared to higher-rated Indonesian banks. Panin'€™s core capital has gradually declined, but it remained satisfactory with FCC ratio at 15.7 percent at end of Q1, 2014, due to strong credit growth (23 percent compound annual growth rate or CAGR in 2011-2013). Loan growth moderated to 13 percent in 2013 from very strong growth of 28 percent CAGR in 2011-2012, but remained faster than the increase in its internal capital generation. Fitch expects Panin to further reduce its loan growth to conserve capital and improve asset quality.

These stable outlooks reflect Fitch'€™s expectation that the three banks will be able to comfortably cover the potential increase in non-performing loans and rise in credit and funding costs without impairing capital due to their satisfactory pre-provision profits and loan loss provisions.