Fitch Downgrades Muamalat and Affirms Mayapada; Outlook Negative
Fitch Ratings Indonesia has downgrade the National Long-Term Ratings on Indonesia- based PT. Bank Muamalat Indonesia Tbk (Muamalat) to 'A-(idn)' and affirmed PT. Bank Mayapada Internasional, Tbk (Mayapada) at 'A-(idn)'. The rating Outlooks have been revised to Negative from Stable. Subsequently, Fitch has also affirmed National Short-Term Ratings of 'F1(idn)' for Mualamat and Mayapada.
'A' National Long-Term Ratings denote expectations of low default risk relative to other issuers or obligations in the same country. However, changes in circumstances or economic conditions may effect the capacity for timely repayment to a greater degree than is the case for financial commitments denoted by a higher rated category.
'F1' National Short-Term Ratings indicate the strongest capacity for timely payment of financial commitments relative to other issuers or obligations in the same country. On Fitch's National Rating scale, this rating is assigned to the lowest default risk relative to others in the same country. Where the liquidity profile if particulary strong, a"+" is added to the assigned rating.
Key Rating Drivers - National Ratings
The affirmation of Mayapada's ratings reflect Fitch's assessment of the bank's strong appetite for credit growth, the associated growth risk to asset quality, weakened capital profile and smaller franchise than other larger peers. Mayapada plans a rights issue amounting IDR 650bn in 3Q15. Fitch believes capital injections from Mayapada's majority shareholders will be critical to support the bank's business development and ability to absorb potential losses from its strong asset growth. Mayapada's Tier 1 capital ratio, at 7.27%, was well below the industry average at end-2014. Its FCC ratio stood 9.97%.
Rating Sensitivities - National Ratings
Sustained improvements in asset quality (likely manifested by reduced appetite for loan growth), sustaining a stronger core capitalisation and risk-adjusted profitability may lead to positive rating action for both banks. Negative rating action may result continued high loan growth, which may result in worsening of asset quality and capitalisation of Mayapada and Muamalat, and diminishing government support for the sharia-banking industry in Muamalat's case.