Bank Mandiri Outlook Revised To Positive On Improving Asset Quality; 'BB+' Ratings Affirmed


  • Mandiri's asset quality has consistently improved over the past two years as the bank has recognized and provided for most of its problem loans.
  • We believe the Indonesia-based bank's asset quality metrics will come closer to the industry average if the improving trend sustains over the next 12-18 months.
  • We are revising the rating outlook on Mandiri to positive from stable. At the same time, we are affirming our 'BB+/B' ratings on the bank.
SINGAPORE (S&P Global Ratings) April 4, 2019--S&P Global Ratings today revised 
its outlook on PT Bank Mandiri (Persero) to positive from stable. At the same 
time, we affirmed our 'BB+' long-term and 'B' short-term issuer credit ratings 
on the Indonesian bank.

We revised the outlook because we expect Mandiri's asset quality to improve 
over the next 12-18 months, and come closer to that of the industry and peers. 
The bank's portfolio rebalancing strategy and tighter underwriting in the 
midsized corporate segment will underpin the improvement. 

Mandiri's nonperforming loans (NPLs) and credit costs have declined 
consistently over the past two years as the bank has recognized and provided 
for most of its problem loans. The bank's NPL ratio improved to 2.8% as of 
Dec. 31, 2018 (3.5% as of Dec. 31, 2017), moving closer to the industry 
average of 2.4%. The absolute quantum of NPLs also reduced to Indonesian 
rupiah (IDR) 20 trillion, from IDR22 trillion in the same period. The decline 
is due to lower slippages and higher write-offs. Credit costs also declined to 
1.1% from 1.6% during this period. We note that credit costs could climb upon 
the implementation of International Financial Reporting Standard 9 in 2020, 
though we believe it will be lower than the peak of 3.3% in 2016. 

We believe Mandiri's tighter underwriting practices in the mid-corporate 
segment will support its asset quality going forward. Midsize enterprises, 
especially those linked to commodities-related sectors such as transportation, 
steel, etc., were the major contributors to the rise in the bank's NPLs when 
commodity prices fell in 2015. 

Mandiri carried out a comprehensive review of its midsize enterprises 
portfolio to recognize and make provisions against stressed loans. Since the 
review, the bank has tightened its underwriting practices in this segment and 
reduced its exposure to 20% as of Dec. 31, 2018, from 30% as of Dec. 31, 2015. 
The bank's strategy is to increase the proportion of consumer loans to 13% 
(from 12% as of Dec. 31, 2018) and micro loans to 16% (from 14%) while 
reducing loans to the midsized corporate segment to 18% (from 20%) and large 
corporate segment to 45% (46%). We expect Mandiri's asset quality to benefit 
from the increase in the proportion of granular consumer loans and reduction 
in the exposure to small and midsize enterprises over the next few years. 

Our ratings also take into account Mandiri's dominant market position, 
majority deposit-funded liabilities profile, and strong liquidity position to 
meet short-term obligations. The bank's capitalization, as reflected in a high 
Tier 1 ratio of 19.8% as of Dec. 31, 2018, will provide sufficient buffer 
against asset-side risks. 

The positive outlook reflects our expectation that Mandiri's asset quality 
will continue to improve over the next 12-18 months. We also believe the bank 
will maintain its strong market position as well as funding and liquidity 
profile.

We will raise the rating if Mandiri's NPLs and credit costs are commensurate 
with that of the industry and the peer average.

We will revise the outlook back to stable if the improvement in asset quality 
stalls, keeping Mandiri's asset quality metrics inferior to that of the 
industry and peers.
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