Fitch Ratings, Jakarta-12 September 2019 – Fitch Ratings Indonesia has affirmed the National Long-Term Rating of PT BFI Finance Indonesia Tbk (BFI Finance) at 'A+(idn)' and its National Short-Term Rating at 'F1(idn)'. The Outlook is Stable. Fitch has also affirmed the issue ratings on BFI Finance's rupiah senior bond programmes and tranches under the programmes at 'A+(idn)'.
'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.
Key Rating Drivers
BFI Finance's National Long-Term Rating is driven by its standalone profile. The rating takes into account the company's better-than-industry asset quality and profitability, and low leverage, counterbalanced by its moderate funding profile and larger risk appetite relative to its bigger multi-finance peers, which is reflected in its sizeable higher-yielding refinancing business that the company intends to grow further. The rating also considers its franchise as the largest independent finance company in Indonesia, with market share of around 3% of the system's managed receivables at end-1H19.
BFI Finance's core business is used-vehicle financing and refinancing (used cars and motorcycles as collateral), which accounts for close to 80% of its net managed receivables, mostly booked through agents and its own sales force. The company intends to increase the proportion of financing in the used-vehicle refinancing segment, which we believe is riskier than typical new-vehicle financing. Nevertheless, the company's non-performing financing (NPF) ratio (more than 90 days overdue) of 1.3% at end-1H19 remained lower than the industry's 2.8% and we expect the ratio to remain stable in the near term, supported by the company's acceptable risk framework and broadly supportive economic environment.
We expect BFI Finance's profitability to continue to outperform that of the industry, supported by its wide margins and expanding better-yielding refinancing business. BFI Finance's profitability has generally been improving since 2015 on the back of its strategy to expand its proportion of used-vehicle refinancing. Its return on average assets of 7.4% (annualised) in 1H19 was slightly weaker than in 2018 as growth slowed, but was significantly above the industry's 3.8%.
We expect BFI Finance's leverage to remain stable in the near-to-medium term as financing growth is likely to be supported by its above-average profitability. BFI Finance's capitalisation is a rating strength and we believe this reflects the management's conservative approach to managing its balance sheet. Its debt/tangible equity ratio of 1.9x at end-1H19 was below the industry average of around 2.8x.
BFI Finance, like its peers, is reliant on wholesale funding as it is not allowed to accept deposits. We believe that this, and its status as an independent multi-finance company, would render the company more vulnerable to market movements, particularly in the event of severe market stress. Nevertheless, its funding composition is reasonably well diversified with bank financing accounting for about 55% of its funding, followed by bonds (37%) and joint financing (8%). Its bank credit facilities include onshore and offshore facilities with various top international and domestic banks.
BFI Finance's rupiah senior bond programmes and tranches under the programmes are rated at the same level as its National Long-Term Rating in accordance with Fitch's criteria, as the issuance constitutes the company's direct and senior obligations and rank equally with all its other senior obligations.
BFI Finance's National Long-Term Rating is sensitive to improvements in its funding and liquidity profile, such as lower reliance on secured debt and better access to more diversified sources of funding, which could lead to a rating upgrade provided the company's other financial metrics remain intact - in particular its conservative leverage profile.
Negative rating action could result from a heightened risk appetite - likely reflected in an easing of credit standards or sustained levels of growth considerably above the industry average - which increases the risk of material deterioration in its asset quality and balance-sheet buffers. Rating downside could also stem from a significantly higher leverage profile on a sustained basis, an increased reliance on short-term sources of funding or a loss of access to market funding.
Any changes to the National Long-Term Rating would affect the issue ratings.
Additional information is available on Fitchratings.