Adira Dinamika Multi Finance Tbk (P.T.) — Moody’s upgrades ratings of Bank Danamon and Adira Finance; outlooks stable

Rating Action: Moody’s upgrades ratings of Bank Danamon and Adira Finance; outlooks stableGlobal Credit Research – 14 Dec 2021Singapore, December 14, 2021 — Moody’s Investors Service has today upgraded Bank Danamon Indonesia TBK (P.T.)’s (Bank Danamon) long-term local and foreign currency deposit ratings to Baa1 from Baa2, as well as the bank’s Adjusted Baseline Credit Assessment (BCA) to baa1 from baa2.Moody’s has also upgraded the long-term local and foreign currency issuer ratings of Bank Danamon’s subsidiary, Adira Dinamika Multi Finance Tbk (P.T.) (Adira Finance), to Baa1 from Baa2.The outlooks on Bank Danamon and Adira Finance, where applicable, remain stable.The rating action reflects Moody’s assumption of a higher probability of support from MUFG Bank, Ltd. (MUFG Bank, A1 stable, a3) in times of need, following the expanding collaboration between Bank Danamon and MUFG Bank since 2018.The full list of affected ratings is provided at the end of this press release. RATINGS RATIONALE Bank Danamon The upgrade of Bank Danamon’s ratings reflects the growing integration of the bank’s business operations with that of MUFG Bank in Indonesia, and the very high probability of support from MUFG Bank in times of need. In recent years, customer acquisitions via MUFG Bank’s customer network in the country have supported the expansion of Bank Danamon’s corporate loans and low-cost deposits, highlighting the strategic importance of Bank Danamon to MUFG Bank.Moody’s expects Bank Danamon’s capital to remain strong over the next 12-18 months. Its Common Equity Tier 1 ratio rose further to 25.6% as of 30 September 2021 from 24.1% a year ago as gross loans declined.Although the asset risks on Bank Danamon’s balance sheet remain high due to the elevated level of restructured loans, Moody’s expects them to recede alongside the recovery in domestic economic conditions. Loans at risk, including those still under regulatory forbearance and classified as current, decreased to 18.8% of the bank’s gross loans as of 30 September 2021 from 28.1% a year ago. In addition, Bank Danamon’s high loan-loss coverage, which stood at 169.7% as of the same date, will provide ample buffers to absorb credit losses.Moody’s also expects Bank Danamon’s profitability to improve because of a decrease in loan-loss provisions. The bank’s return on average assets was stable at 1.0% in the first nine months of 2021 compared with a year ago, but remained below pre-pandemic levels because of the elevated loan-loss provisions and compressed net interest margin.Bank Danamon’s funding franchise will remain modest compared with Moody’s-rated banks in Indonesia. The share of current and savings accounts in the bank’s deposits increased to 57.6% as of 30 September 2021 from 51.5% a year ago, but remained lower than the 60.2% for the industry as of the same date. That said, the bank has a record of maintaining adequate liquidity on its balance sheet. Its average liquidity coverage ratio for the third quarter of 2021 rose further to 189.7% from 164.8% last year because of the contraction in its gross loans.Adira FinanceThe upgrade of Adira Finance’s ratings reflects the higher level of support from Bank Danamon, given the bank’s increasing integration with MUFG Bank. Adira Finance is an integral part of Bank Danamon and is of strategic importance to MUFG Bank. Total loans managed by Adira Finance, including those funded by Bank Danamon under a joint financing agreement, constituted more than 30% of Bank Danamon’s consolidated loans as of 30 September 2021. Moody’s assumes a very high probability of support from Bank Danamon and MUFG Bank in times of need.Adira Finance’s ratings also incorporate the company’s strong capital and profitability, which offset its modest asset quality and liquidity, the latter due to the company’s low cash balances and reliance on confidence-sensitive funding as a finance company.Adira Finance will remain well-capitalized, given that the company can leverage Bank Danamon’s balance sheet for loan expansion. Historically, the company has maintained a debt-to-equity ratio of between 2x and 4x, well below the 10x prescribed by the local regulator. The ratio decreased further to 1.4x as of 30 September 2021 from 2.7x a year ago because of a sharp contraction in its gross loans.Moody’s expects Adira Finance’s profitability to improve because of higher loan disbursements and lower loan-loss provisions amid a recovery in economic activities. Its profitability is strong, underpinned by the company’s high-yielding two- and four-wheeler businesses. Adira Finance’s return on average assets increased to 3.9% in the first nine months of 2021 from 3.2% over the same period a year ago, driven by a rebound in loan disbursements.Moody’s expects Adira Finance’s asset quality to improve with the recovery in economic activities. Although the company’s nonperforming loan ratio rose to 2.8% in the first nine months of 2021 from 1.8% over the corresponding period a year ago because of the pandemic disruptions, most borrowers have exited debt relief programs and resumed normal repayments as of 30 September 2021.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSMoody’s is unlikely to upgrade Bank Danamon’s ratings, given the stable outlook on MUFG Bank’s ratings. However, Moody’s could upgrade Bank Danamon’s BCA if the bank’s asset quality improves, as indicated by a material decrease in restructured loans. An improvement in the bank’s profitability, driven by a sustained decrease in loan-loss provisions, will also be positive for the BCA.Moody’s could downgrade Bank Danamon’s ratings if the bank’s asset quality weakens, as indicated by a significant increase in defaults when regulatory forbearance expires. A substantial decrease in the bank’s capital will also be negative for the ratings.Moody’s is unlikely to upgrade Adira Finance’s ratings, given the stable outlook on Bank Danamon’s ratings. However, Moody’s could raise the company’s standalone assessment if its asset quality and profitability improve sustainably.Moody’s could downgrade Adira Finance’s ratings if the company’s asset quality weakens substantially and weighs down its profitability. A material decrease in the company’s capital will also be negative for the ratings.The principal methodology used in rating Bank Danamon Indonesia TBK (P.T.) was Banks Methodology published in July 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1269625 . The principal methodology used in rating Adira Dinamika Multi Finance Tbk (P.T.) was Finance Companies Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187099. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.Bank Danamon Indonesia TBK (P.T.) is headquartered in Jakarta and reported consolidated assets of IDR188.3 trillion ($13.2 billion) as of 30 September 2021.Adira Dinamika Multi Finance Tbk (P.T.) is headquartered in Jakarta and reported assets of IDR24.0 trillion ($1.7 billion) as of 30 September 2021. LIST OF AFFECTED RATINGS Upgrades: ..Issuer: Bank Danamon Indonesia TBK (P.T.)…. Adjusted Baseline Credit Assessment, Upgraded to baa1 from baa2…. Long-term Counterparty Risk Assessment, Upgraded to A3(cr) from Baa1 (cr)…. Long-term Counterparty Risk Rating (Foreign and Local Currency), Upgraded to A3 from Baa1…. Long-term Deposit Rating (Foreign and Local Currency), Upgraded to Baa1 from Baa2, Outlook remains StableOutlook Actions:..Issuer: Bank Danamon Indonesia TBK (P.T.)….Outlook, Remains StableAffirmations:..Issuer: Bank Danamon Indonesia TBK (P.T.)…. Baseline Credit Assessment, Affirmed baa3…. Short-term Counterparty Risk Assessment, Affirmed P-2(cr)…. Short-term Counterparty Risk Rating (Foreign and Local Currency), Affirmed P-2…. Short-term Deposit Rating (Foreign and Local Currency), Affirmed P-2Upgrades:..Issuer: Adira Dinamika Multi Finance Tbk (P.T.)…. Issuer Rating (Foreign and Local Currency), Upgraded to Baa1 from Baa2Outlook Actions:..Issuer: Adira Dinamika Multi Finance Tbk (P.T.)….Outlook, Remains StableREGULATORY DISCLOSURESFor further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. 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Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Tengfu Li Analyst Financial Institutions Group Moody’s Investors Service Singapore Pte. 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