JAKARTA -Moody’s Investors Service has assigned a (P)Ba2 long-term foreign currency subordinate debt rating to the Tier-2 notes component of Bank Negara Indonesia (Persero) Tbk (P.T.)’s (BNI) euro medium-term note program.

The rating does not apply to individual securities issued under the program. The ratings of the individual securities will be subject to Moody’s review of their terms and conditions, as well as the pricing supplements set forth at issuance.

The assigned rating is based on draft documents reviewed by Moody’s, which Moody’s does not expect to be materially different from those in the final documentation.

RATINGS RATIONALE

The (P)Ba2 rating is two notches below BNI’s baa3 Adjusted Baseline Credit Assessment (BCA), in line with Moody’s notching guidance for contractual non-viability subordinated debt.

The notching reflects: (1) the subordination of these securities in liquidation; and (2) the uncertainty regarding the timing of the write down, as they may be forced to absorb losses near (but before) the point of non-viability as a way to avoid a bank-wide resolution.

Moody’s does not incorporate any government support uplift into the rating, as these securities are intended to be loss-absorbing in the event of financial stress at the bank.

Under the draft terms and conditions, the Tier-2 capital securities will constitute direct, unsecured and subordinated obligations of the bank, and they will rank pari passu with all other subordinated debts classified as Tier-2 capital.

The interest payments from these securities will be deferred on a cumulative basis, if the bank is unlikely or unable to meet regulatory capital requirements.

The principal and interest of these securities will be written down, partially or in full, upon the occurrence of a non-viability event.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING

The (P)Ba2 Tier-2 program rating will move in tandem with BNI’s baa3 Adjusted BCA.

Moody’s could upgrade the BCA and Tier-2 program rating if the bank’s asset quality improves, as indicated by a material decline in its nonperforming and restructured loans. A significant increase in the bank’s capital will also be positive for its BCA and Tier-2 program rating.

On the other hand, Moody’s could downgrade the BCA and Tier-2 program rating if the bank’s asset quality weakens further, or if there is a material deterioration in the bank’s capital.