Yunindita Prasidya, Jakarta – Indonesian rating agency Pemeringkat Efek Indonesia (Pefindo) has revised the outlooks of several financial institutions and downgraded the rating of asset-backed securities amid concerns over the impact of COVID-19 on the institutions' performances.
Between April 1 and May 5, the rating agency revised the outlooks of Mandala Finance, Bank Capital, Bank Victoria and Trimegah Sekuritas to negative from a previously stable outlook. The ratings of the four financial institutions remain unchanged.
KIK EBA Mandiri-Garuda GIAA01, however, was downgraded from AA+ to A- and was put on credit watch negative, which indicates that the credit rating of the asset-backed securities (KIK-EBA) issued by investment management firm Mandiri Investasi and flag carrier Garuda Indonesia might be downgraded in the near future.
"The revision in outlook and the downgrade in rating we did were predominantly caused by current business conditions, in which we think there is an increase of risks due to the spread of COVID-19," Pefindo senior vice president Hendro Utomo said in a virtual press briefing on Friday.
Financial institutions have been at risk amid the ongoing COVID-19 pandemic, as the social-distancing restrictions impact business activities, resulting in sluggish loan demand while increasing the risk of bad loans.
Hendro said that while Pefindo was of the view that the finance firms had the ability to manage the risks, the business outlook depended on the rate of the pandemic containment and the economic recovery that followed.
"We are currently monitoring the companies' liquidity state to meet the obligations that will mature soon," he said.
The multifinance sector has also been significantly affected, with loan borrowers' dwindling income posing risks to the lenders.
Pefindo is not the only rating agency to downgrade its ratings on Indonesian financial institutions. On March 24, international rating agency Fitch Ratings lowered PT Bank Central Asia Tbk's (BCA) rating to BBB- from BBB and its finance subsidiary PT BCA Finance to AA+(idn) from AAA(idn).
"The downgrades reflect Fitch's view of the weaker operating environment for Indonesia's banks as a result of the COVID-19 pandemic," it wrote in a statement.
Meanwhile, the impact of the pandemic also extends to the debt securities issuance.
Pefindo had issued a total of Rp 17.2 trillion (US$1.15 billion) worth of debt securities in the first quarter of the year, down from Rp 19.36 trillion issued during the same period last year.
Despite this, Pefindo data shows that, as of April 30, the firm had received mandates to issue debt securities worth Rp 71.29 trillion, higher than Rp 52.67 trillion last year, a figure reported by Kontan. Most of the companies to issue debt securities this year are state-owned enterprises.
Financing companies and banks are the two sectors to issue the largest value of debt securities, with a total of nine financing firms and three banks planning to issue debt securities worth an accumulated Rp 11.25 trillion and Rp 11 trillion, respectively, according to Pefindo data.
The increase in mandates so far, however, does not necessarily signal immunity against the ongoing health crisis' impact on corporate debt securities.
The Pefindo research team said in the virtual briefing that it forecasted a lower amount of corporate debt securities to be issued in the country this year, compared to Rp 146 trillion issued last year, according to data from the Indonesian Central Securities Depository (KSEI).
The research team projected three different scenarios depending on when the pandemic ends, with the most optimistic scenario predicting the issuance of debt securities issuance to total Rp 137.5 trillion by year-end if the health crisis ends in June.
However, the yearly debt securities figure also has the potential to stand at Rp 116.9 trillion in a scenario in which the virus is contained by August or Rp 96.4 trillion in a worst-case scenario in which the virus is contained by October