Bank Tabungan Negara’s high asset risk remains despite strong capital ratio

Profitability is expected at 0.55% to 0.65% in 2025 on higher credit costs.

Bank Tabungan Negara (BTN) faces solvency risks not obviously reflected in its reported financial rations, said Moody’s Ratings.

The Indonesia-based bank has a strong capital ratio of 15.3%. However, its published ratio and low nominal leverage of 6.6% may overstate the bank’s balance sheet buffers, the ratings agency said.

“We expect BTN’s asset risk to remain high, despite ongoing efforts to clean up its legacy of nonperforming loans (NPLs) through sizable NPL sales and write-offs,” Moody’s said.

“Whilst BTN is limiting repeated restructurings and has downgraded most of the restructured loans to NPLs, we still expect its level of restructured loans to stay high at 16% of gross loans given its significant mortgage exposure with longer tenors,” it added.

BTN has a low level of provisioning relative to its high asset risk, Moody’s said. This is reflected in its high stock of restructured loans and high level of accrued interest.

“Although the bank's risk-weight density was low at 43%, the ratio is not fully reflective of the bank's asset risk because the bank's restructured loans are risk-weighted according to their assigned collectability classification, based on the central bank's standards, even if they have been repeatedly restructured,” Moody’s said.

As a result, reported earnings and capital are not fully capturing the underlying stresses on its financial profile.

On a positive note, the bank is expected to enjoy a very high level of support from the government of Indonesia in times of need.

Profitability is forecasted to decline to around 0.55% to 0.65% in 2025 on higher credit costs that will offset improvement in BTN’s net interest margin (NIM).

“The extent of NIM improvement will depend on BTN's ability to further reduce its funding costs through its ongoing digitalization efforts to enhance its access to low-cost deposits,” Moody’s said.

It will also depend on the successful implementation of strategic initiatives by the bank and new government support schemes, which will support its lending yields.