Bank Mandiri awarded better rating than state

The Jakarta Post, Jakarta

International rating agency Standard & Poor's assigned on Friday its single B- long term and C short term counterparty credit ratings to the giant state-owned Bank Mandiri, with a negative outlook.

But at the same time, Bank Mandiri's proposed US$100 million five-year floating rate note (FRN) was rated B-, which is above the sovereign rating.

"Any material change in the terms and conditions of the proposed FRN may affect the rating on the issue," the agency said in a statement.

It said that the ratings took into consideration an asset book dominated by government local currency bonds, above average loan- loss provisioning coverage on reported nonperforming loans (NPLs), positive capitalization and its position as Indonesia's largest bank where it commanded a market share of about 24 percent of total industry deposits and 16 percent of loans.

Bank Mandiri, however, operated in a very difficult economic environment, the agency said.

It pointed out that gross NPLs were still high, although the effect is muted as loans made up only one-fifth of total assets.

Given the lack of viable lending opportunities, the bank's profitability is highly dependent on interest income from its government bonds, it said.

The bank would also face the dilemma of having to reinvest funds from such bonds, probably into other government debt paper, as the bonds mature in stages over the next eight years, the agency said.

"While recognizing that Mandiri is still subject to the risks associated with operating in a highly indebted and still developing country with an uncertain policy environment, limited fiscal flexibility, a weak currency, and rising inflation; Standard & Poor's considers that although the risk of systemwide exchange controls being imposed is not immaterial in Indonesia, this risk is consistent with a single-'B'-minus rating."