Bank Tabungan Negara’s Baa2 rating affirmed, BCA downgraded to ba2

Investing.com -- Moody’s Ratings has affirmed Bank Tabungan Negara’s Baa2/P-2 long-term and short-term foreign and local currency deposit ratings while downgrading its Baseline Credit Assessment (BCA) from ba1 to ba2, according to a statement released Tuesday.

The outlook on the bank’s long-term deposit ratings remains stable. The rating agency also affirmed BTN’s Baa2/P-2 Counterparty Risk Ratings and Baa2(cr)/P-2(cr) Counterparty Risk Assessments.

Moody’s explained that the BCA downgrade reflects solvency risks not clearly visible in BTN’s reported financial ratios. The bank’s low provisioning relative to its high asset risks, particularly its large portfolio of restructured loans and high accrued interest, suggests reported earnings and capital may not fully capture underlying financial stresses.

Despite these concerns, the affirmation of BTN’s Baa2 deposit ratings incorporates Moody’s assessment of "very high probability" of support from the Indonesian government in times of need, resulting in a three-notch uplift from its ba2 BCA. This support assumption stems from BTN’s systemic importance as one of Indonesia’s largest banks, the government’s majority ownership, and the bank’s role in supporting government housing initiatives.

As of March 31, 2025, BTN’s capital ratio measured by tangible common equity as a percentage of risk-weighted assets stood at 15.3%, with nominal leverage at 6.6%. However, Moody’s believes these figures may overstate the bank’s balance sheet buffers due to its risk-weighting practices for restructured loans and high level of accrued interest receivables, which represented 36% of tangible common equity or 3.1% of gross loans.

Asset risk is expected to remain elevated despite ongoing efforts to reduce legacy non-performing loans through sales and write-offs. While the NPL ratio will decline, the stage 3 loan ratio is projected to remain around 5%, reflecting the bank’s substantial portfolio of restructured loans, which is expected to stay high at 16% of gross loans.

Moody’s forecasts BTN’s profitability to slightly decrease to 0.55%-0.65% return on assets in 2025 as higher credit costs offset modest improvements in net interest margin. The rating agency noted this profitability would be "much lower if the bank were to be creating provisions at more appropriate levels relative to its asset risk."

The bank’s funding profile shows low reliance on market funds at 9.0% of tangible banking assets, though its access to low-cost deposits remains modest compared to domestic peers. BTN’s liquidity position is adequate with liquid banking assets accounting for 17.8% of tangible banking assets.

An upgrade of BTN’s deposit ratings is unlikely as they already match Indonesia’s sovereign rating. The BCA could be upgraded if restructured loans decrease significantly without corresponding increases in problem loans, or if the bank improves its profitability and liquidity position sustainably.

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