Fitch Affirms BFI Finance’s Rating at 'A+(idn)', Revises Outlook to Stable

Fitch Ratings, Jakarta, March 10, 2021 - Fitch Ratings Indonesia has affirmed PT BFI Finance Indonesia Tbk (BFI Finance)'s National Long-Term Ratingat 'A+(idn)' and the National Short-Term Rating at 'F1(idn)'. Fitch revised the rating outlook to Stable from Negative

'A' National Long-Term Ratings denote expectations of a low level of default risk relative to other issuers or obligations in the same country or monetary union.

'F1' National Short-Term Ratings indicate the strongest capacity for timely payment of financial commitments relative to other issuers or obligations in the same country. Under the agency's National Rating scale, this rating is assigned to the lowest default risk relative to others in the same country or monetary union. Where the liquidity profile is particularly strong, a "+" is added to the assigned rating.

The Stable Outlook reflects Fitch's view that the downside risks to BFI Finance's profile due to the coronavirus pandemic have eased, and Fitch expects BFI Finance's financial metrics to remain largely consistent with the current rating over the next one to two years.


BFI Finance's ratings are based on its Stand-alone Credit Profile, and reflect its market position as a top-10 non-bank finance company in Indonesia, a concentration in used vehicle refinancing which Fitch views as presenting higher credit risk, as well as its satisfactory profitability buffers, low leverage and adequately matched asset-liability maturity profile. The revision of the Outlook to Stable reflects our opinion that the risks to asset quality, profitability and liquidity arising from the pandemic should remain within the tolerance of the current rating level.

Fitch expects Indonesia's finance and leasing industry to experience less pressure in 2021 compared with the previous year, driven by a gradual economic recovery. Indonesia's GDP has shown signs of improvement since the steady reopening of economic activities in 2H20, recording a milder contraction of 2.2% yoy in 4Q20 compared with the 2Q20 decline of 5.3% yoy.

The industry still faces challenges from a muted recovery in automotive sales -a key driver of industry growth- and a significant balance of restructured receivables. For BFI Finance, however, these issues are tempered by its entrenched franchise, acceptable underwriting standards, record of payment normalisation for receivables previously restructured, and adequate earnings and balance-sheet loss absorption buffers.

Fitch expects pressure to ease on BFI Finance's asset quality in 2021 amid cautiously improving economic conditions. A significant portion of BFI Finance's restructured borrowers has returned to the regular repayment schedule, while collection and repossession processes have resumed gradually as social distancing measures have been relaxed. Fitch expects BFI Finance's non-performing financing ratio (9M20: 2.7%; 2019: 0.9%) to remain higher than prior to the pandemic given the weak economic recovery, but without placing disproportionate pressure on the rating.

BFI Finance's profitability buffer stems from the high net interest margin and satisfactory provisioning, and we view this as sufficient to absorb any further near-term credit deterioration. BFI Finance operates mainly in high-yield used car refinancing, allowing for a wide net interest margin of 16.3% in 9M20 (2019: 15.4%). Its annualised pretax income/average assets fell to 4.9% by end-9M20 (2019: 5.7%) due to high provisioning costs, but remained higher than the industry average of 2.0%.

Fitch believes BFI Finance's capitalisation and liquidity will remain adequate, supported by the Company's earnings generation capacity, low debt/tangible equity position (9M20: 1.6x; 2019: 1.9x), wide net positive liquidity gaps and sufficient coverage from undrawn bank facilities. Fitch also expects BFI Finance to retain satisfactory access to both bank and Bond financing over the coming year.


BFI Finance's rupiah senior Bond programmes and the tranches under the programmes are rated at the same level as its National Long-Term Rating under Fitch's criteria, as the issuance constitutes direct and senior obligations of the company and ranks equally with all its other senior obligations.



Factors that could, individually and collectively, lead to positive rating action/upgrade:

BFI Finance's ratings may be upgraded if its funding and liquidity profile strengthens, as characterised by an ability to reduce reliance on secured funding - including market acceptance of lower collateral coverage on its senior debt issuance - or broadened access to more diversified funding sources. This is provided that BFI Finance's risk appetite and asset quality remain adequately managed, with asset-quality metrics returning to and sustained in line with pre-pandemic levels, and the Company continues to maintain its conservative leverage and liquidity profile.

Factors that could, individually and collectively, lead to negative rating action/downgrade:

Negative rating action would stem from a significant deterioration in BFI Finance's financial position relative to Fitch's expectations, potentially driven by a material unexpected worsening in the economic outlook due to the pandemic. Such a scenario is likely to be accompanied by a considerable weakening in the Company's asset quality, triggering sharp and sustained falls in profitability and liquidity due to provisioning, receivable collection and funding risks. However, this is not our base case.


Factors that could, individually and collectively, lead to positive rating action/upgrade: An upgrade of the National Long-Term Rating would lead to a corresponding upgrade of the Bond programmes and issuance ratings.

Factors that could, individually and collectively, lead to negative rating action/downgrade: A downgrade of BFI Finance's National Long-Term Rating would lead to similar action on the ratings on the Company's Bond programmes and issuance.

Additional information is available on Fitchratings.