Jakarta, March 7, 2022 – Fitch Ratings Indonesia has affirmed the National Long-Term Rating on PT BFI Finance Indonesia Tbk (BFI Finance) at 'A+(idn)'. The agency has also affirmed the National Short-Term Rating at 'F1(idn)'. The Outlook is Stable.
BFI Finance is the largest independent finance and leasing company in Indonesia, and a market leader with a share of around 16% in its niche of used-vehicle refinancing. The segment accounts for 80% of its managed receivables, including off-balance-sheet financing. Meanwhile, its share of the overall finance and leasing market is around 3% of industry-managed receivables as of end-2021. It also has a heavy-equipment financing business, which accounted for around 13% of managed receivable.
The '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(idn)' 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. Where the liquidity profile is particularly strong, a "+" is added to the assigned rating.
KEY RATING DRIVERS
NATIONAL RATINGS
BFI Finance's ratings are driven by its standalone profile, reflecting its franchise as Indonesia's largest independent finance and leasing company, experienced management team and adequate financial profile. BFI Finance's resilient asset quality and earnings performance during the Covid-19 pandemic, together with its low leverage, further supported BFI Finance's rating. Fitch also considers BFI Finance's reasonably diversified funding access, which has remained in place throughout the pandemic, and adequate liquidity profile with positive asset-liability maturity gap.
Fitch expects asset quality to remain stable, supported by the improving economic conditions, adequate underwriting standards and credit-risk monitoring system. BFI Finance's asset quality outperforms the industry average. Its non-performing financing ratio declined to 1.3% in 2021 (2020: 1.7%; 2019: 0.9%), close to pre-pandemic levels and significantly below the industry average of 3.5%. Receivables under active restructuring remain low, while net charge-offs (2021: 2.3%; 2020: 2.8%) are below those of many peers.
Profitability continues to benefit from high margins in BFI Finance’s main business segments. This provides a cushion against potential asset-quality fluctuations and provisioning. Pre-tax income/average assets improved to 9.2% in 2021 (2020: 5.0%) amid falling provisioning costs and a stable net-interest margin, significantly higher than the industry average of 4.4%.
Leverage, measured by debt/tangible equity, may rise above 2021's 1.0x (2020: 1.2x; industry: 2.0x) on strong loan growth as the economy recovers, but should stay below 2.0x.
BFI Finance relies on wholesale funding, predominantly on a secured basis. Fitch expects funding access and BFI's liquidity profile to remain supported by a positive net liquidity gap and large undrawn loan facilities.
BFI Finance’s current major shareholder, Trinugraha Capital & Co SCA, has launched a tender offer for BFI Finance's remaining publicly held shares. The ultimate shareholder structure may shift after the tender offer, but Fitch does not anticipate any immediate negative implications on BFI Finance's credit profile. The agency will assess any broader implications for BFI Finance's strategy and business profile in the medium-to-longer term as they become clearer.
ISSUE RATINGS
BFI Finance's rupiah senior bond programs and underlying bond issuances are rated at the same level as its National Long-Term Rating, as the issuances constitute its direct and senior obligations and rank equally with all its other senior obligations.
RATING SENSITIVITIES
NATIONAL RATINGS
Factors that could, individually or collectively, lead to positive rating action/upgrade:
A strengthened franchise, business model and funding profile relative to peers in the Indonesian national rating universe. This may be evidenced by increasing market share, diversification in its business model, perhaps towards lower-risk product lines at an adequate return, or a further-broadened funding base. Sustained liquidity coverage - (scheduled receivables cash inflow + unutilized bank lines)/scheduled debt repayments - over the next 12 months at above 2x also be positive for the rating.
Any positive rating action is contingent on BFI Finance maintaining adequate risk controls and key financial metrics commensurate with a higher rating, including debt/tangible equity below 2.0x.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
A weakened financial profile, including severe asset-quality deterioration, a deterioration in liquidity buffers that leads to short-term asset-liability mismatches under stress, or substantially higher leverage beyond 4.0x. A notable rise in risk appetite, including overly aggressively growth, expansion into untested or riskier products or loosening in underwriting standards would also be negative for the rating.
ISSUE RATINGS
Factors that could, individually or collectively, lead to positive rating action/upgrade:
An upgrade of the National Long-Term Rating would lead to a corresponding upgrade of the program and issue ratings.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
A downgrade of BFI Finance's National Long-Term Rating would prompt similar action on the ratings on the bond programs and issuance.
Additional information is available on Fitchratings.