Fitch Ratings Indonesia has affirmed the national rating on PT Bank BRIsyariah Tbk’s (BRIS, BB+/AA(idn)/Stable) subordinated sukuk at ‘A(idn)’. The sukuk was issued in 2016 in the amount of IDR1 trillion and will mature in 2023.
The affirmation follows a review of the national ratings assigned to the issuance of Tier 2 debt by Indonesian banks after the publication of our updated Bank Rating Criteria on 28 February 2020; see Fitch Ratings to Review Indonesian National Ratings Assigned to Tier 2 Debt at www.fitchratings.com/site/pr/10113967
‘A’ National Long-Term Ratings denote expectations of a low level of default risk relative to other issuers or obligations in the same country or monetary union.
KEY RATING DRIVERS
BRIS’s Basel III-compliant subordinated sukuk are rated three notches below its National Long-Term Rating; two notches for loss severity to reflect subordination and risk of conversion or write-down and one notch for non-performance to reflect the risk of coupon and principal deferral.
We have widened the notching for loss severity to two notches, from one notch previously, reflecting the changes in Fitch’s latest criteria on the baseline notching for banks’ subordinated debt to two notches below the anchor rating, from the previous base case of one notch. These Tier 2 debt instruments have an embedded permanent write-down feature (both principal and interest in full or in part) when the bank approaches its point of non-viability. We believe the bonds have poor recovery prospects compared with senior unsecured obligations.
Fitch has narrowed its standard notching for non-performance risk for Indonesian Basel III-compliant subordinated instruments to one notch, from two notches previously, as we believe non-performance risk is ‘average’, rather than ‘above average’, under our latest criteria. The sukuk incorporate features that allow coupons and principal to be deferred and accumulated if the bank’s capital position falls below its minimum requirements. We believe BRIS’s subordinated obligations may benefit from institutional support from parent, PT Bank Rakyat Indonesia (Persero) Tbk (BRI; BBB-/AA+(idn)/Stable/bb+), but non-performance risk mitigation is not possible under our criteria, as BRIS’s subordinated debt rating is capped at the equivalent rating on similar instruments – if issued – by its support provider, BRI.
Source: Fitch Ratings