SME loans are risky.
Fitch Ratings maintained Bank Mega’s investment grade with a stable outlook but sent that message.
It cited mixed factors that included weakening asset quality and increased profitability as a result of Indonesian lenders venture into riskier small and medium enterprise loans.
“The national long-term rating reflects the bank’s weaknesses, including a small franchise, concentrated funding profile and weakened asset quality,” Fitch said in a statement on Friday, a year after it downgraded the lender’s rating to A from A+.
“These are counterbalanced by its increased profitability and adequate capital buffer,” it added.
Fitch noted that Mega, which is controlled by tycoon Chairul Tanjung’s CT Corp., was making an aggressive push into small and medium enterprise lending that may further erode the bank’s asset quality.
Fitch gave Mega an A(idn) national long-term rating and a BBB(idn) rating for its subordinated bonds. Those ratings are four and one notch above investment grade, respectively.
The (idn) suffix means those ratings are only comparable to those of other Indonesian companies.
Non-performing loans increased to 1.4 percent at the end of the first half this year, from 1 percent over the same period last year, as the bank expanded into the higher risk SME segment, the agency said.
“This may prompt the agency to revise Bank Mega’s outlook to negative from stable or to downgrade its rating,” it said.
The agency noted that the bank is planning to increase the proportion of its higher-margin retail business to about 75 percent of total loans, from about 60 percent at the end of the first half this year.
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