Fitch Ratings - Jakarta, 22 November 2017 : Fitch Ratings Indonesia has affirmed the National Long-Term Rating of PT BFI Finance Indonesia Tbk (BFI) at 'AA-(idn)' and its National Short-Term Rating at 'F1+(idn)'. The Outlook is Stable. The Outlook is Stable. A full list of rating actions can be found at the end of this commentary.
'AA' National Ratings denote expectations of very low default risk relative to other issuers or obligations in the same country. The default risk inherently differs slightly from that of the country's highest rated issuers or obligations.
'F1' Short-Term National Ratings indicate the strongest capacity for timely payment of financial commitments relative to other issuers or obligations in the same country. On Fitch's National Rating scale, this rating is assigned to the lowest default risk relative to others in the same country. Where the liquidity profile is particularly strong, a "+" is added to the assigned rating.
KEY RATING DRIVERS
BFI's National Ratings reflect the company's standalone profile as one of the largest independent finance companies in Indonesia with a sustained sound financial performance and balance sheet, healthy profitability, solid capitalisation, manageable asset quality and a diversified funding profile.
BFI had around 3% market share of the industry's total financing at end-9M17. Its core business is used-car and motorcycle refinancing (through direct channels), which accounts for around 55% of its financing portfolio. With 321 outlets, BFI has one of the widest national distribution networks of non-bank affiliates in the industry. Fitch believes this large network will support its future growth.
BFI's return on equity (ROE) and return on assets (ROA) rose to 23.9% and 7.8%, respectively, at end-9M17 (2016: 19.3% and 6.6%), higher than the industry averages of 12.2% and 4.0%. Improvements in profitability stemmed from its strategy to re-focus towards its core refinancing business, which generates the highest risk-adjusted return for the company, while maintaining its cost-efficiency measures.
The company's capital profile has been stronger than that of most peers, underpinned by its solid internal capital generation.
Its equity to assets ratio was at 31.9% at end-9M17 (2016: 34.1%), one of the highest in the industry. Fitch believes BFI's low leverage at 2x and maintenance of positive asset-liability gap should provide the company with an adequate cushion to withstand market shocks.
BFI's NPL ratio of 1.1% at end-9M17 (2016: 0.9%) was much lower than the industry average of 3.2%. Its NPL coverage of 148.3% should help to cushion any profitability pressure from deterioration in asset quality in the near to medium term. Fitch believes the company's refocus towards vehicle refinancing and its strategy to reduce dealer-channel new car and heavy equipment financing will help to support its asset quality in the near to medium term.
BFI's funding sources are diversified; they include onshore and offshore bank loans (62%), bonds and medium-term notes (33%), and non-recourse joint-financing (5%). Liquidity remains satisfactory with sound asset-liability management.
The ratings of BFI's rupiah-denominated senior bonds and medium-term notes are the same as the company's National Long-Term Ratings in accordance with Fitch's criteria.
RATING SENSITIVITIES
A notable deterioration of asset quality that could adversely impact profitability and capitalisation, or a sustained weakening of BFI's franchise may exert downward pressure on the ratings. Sustainable growth that results in a significantly stronger franchise, perhaps manifested in higher industry market share, while maintaining solid asset quality may lead to a rating upgrade, although Fitch views this scenario as unlikely in the near to medium term.
Any changes to the National Long-Term or Short-Term Ratings would affect the issue ratings.
Full list of rating actions:
- National Long-Term Rating affirmed at 'AA-(idn)'
- National Short-Term Rating affirmed at 'F1+(idn)'
- Medium term notes affirmed at 'AA-(idn)'
- Rating on senior bond programmes and tranches under the programmes affirmed at 'AA-(idn)' and 'F1+(idn)
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