Fitch Affirms Indonesia's BCA Finance at 'AAA(idn)'; Outlook Stable

Wed May 21, 2014 1:47am EDT

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(The following statement was released by the rating agency) JAKARTA/TAIPEI/SINGAPORE, May 21 (Fitch) Fitch Ratings has affirmed the National Long-Term Rating of PT BCA Finance (BCAF) at 'AAA(idn)'. The Outlook is Stable. A full list of rating actions is at the end of this rating action commentary. The affirmation of BCAF's ratings reflects Fitch's assessment of the continued support from and linkage with its shareholder, PT Bank Central Asia Tbk (BCA; AAA(idn)/Stable). 'AAA' National Ratings denote the highest rating assigned by Fitch on its national rating scale for that country. This rating is assigned to issuers or obligations with the lowest expectation of default risk relative to all other issuers or obligations in the same country. '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. 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 - National Ratings BCAF's ratings reflect Fitch's expectation of a strong probability of support from its parent in times of need. The ratings also take into account BCAF's role as BCA's core subsidiary to support BCA's business expansion in Indonesia's fast-growing consumer financing market as well as expected improvements in the regulatory framework for multi-finance companies. Having a single regulator for banks and finance companies may help ensure a level playing field and similar regulatory standards for banks and their finance-company units. As an integral part of BCA's consumer business chain, BCAF has an important role in managing BCA's entire portfolio of car loans. The car loan portfolio formed a significant 33% of BCA's consumer loans at end-1Q14. BCA's support is manifested in the common brand name it shares with BCAF, the provision of funding and operational alignment such as utilisation of BCA's branch network. The business referrals from BCA also remained significant at about 42% of BCAF's new financing in 2013. The Stable Outlook reflects Fitch's expectations that BCA will continue to support BCAF in case of need. The strong funding support from its parent will help BCAF to sustain its competitiveness in lending rates. BCAF's debt/equity ratio remained low at 3.0x at end-Q114, despite rapid loan growth. This reflects substantial reliance on the without-recourse joint-financing from the parent, rather than borrowings from the market. BCAF's asset quality is expected to worsen but will remain manageable in 2014 given more challenging operating condition. RATING SENSITIVITIES - National Ratings Any significant dilution in BCA's ownership and deterioration in its performance or perceived weakening of support would exert downward pressure on the ratings on BCAF, including the possibility of multi-notch downgrades. However, Fitch sees this prospect as remote in the foreseeable future, given BCAF's core role in BCA's consumer business strategy. There is no rating upside as the rating is already at the top end of the scale. RATING SENSITIVITIES - Debt Ratings The senior bonds and bond programme are rated at the same level as BCAF's National Long- and Short-Term Ratings as they constitute direct, unsubordinated and senior unsecured obligations of the company and rank equally with all its other unsecured and unsubordinated obligations. Any changes in the company's National Long- and Short-Term Ratings would affect these issue ratings. The subordinated debt is rated three notches below BCAF's National Long-Term Rating to reflect its subordinated status and at the same level as a similar instrument of BCA, but not higher. Fitch assesses coupon deferral risk to be present for all Lower Tier 2 securities issued by BCAF, including those with no coupon deferral features in the original term sheets. It is Fitch's view that in the event Indonesian banks are placed under "intensive surveillance" by the Financial Service Authority (OJK), the banks, together with their finance companies, would not be allowed to pay coupons on their Lower Tier 2 securities, which is a form of non-performance risk. The full list of rating actions follows: National Long-Term Rating affirmed at at 'AAA(idn)'; Outlook Stable National Short-Term Rating affirmed at 'F1+(idn)' Bond Programme affirmed at 'AAA(idn)' Rupiah Senior Bond Tranche III/2014 affirmed at 'AAA(idn)' and 'F1+(idn)' Rupiah Senior Bond Tranche II/2013 affirmed at 'AAA(idn)' and 'F1+(idn)' Rupiah Senior Bond Tranche I/2012 affirmed at 'AAA(idn)' Rupiah Senior Bond IV/2011 affirmed at 'AAA(idn)' Subordinated Bond I/2010 affirmed at 'AA-(idn)' Contacts: Primary Analyst Ira Febrianty Analyst PT Fitch Ratings Indonesia Financial Institution DBS Bank Tower 24th Floor, Suite 2403 Jl. Prof. Dr. Satrio Kav 3-5 Jakarta, Indonesia 12940 +62 21 2988 6810 Committee Chairperson Jonathan Lee Senior Director +886 2 8175 7601 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com. Note to editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(idn)' for National ratings in Indonesia. Specific letter grades are not therefore internationally comparable. Additional information is available at www.fitchratings.com. Applicable criteria, "Global Financial Institutions Rating Criteria", dated 31 January 2014, "Finance and Leasing Companies Ratings Criteria", dated 12 December 2012, "Rating FI Subsidiaries and Holding Companies", dated 10 August 2012, and "National Scale Ratings Criteria", dated 30 October 2013, are available at www.fitchratings.com. Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria here Finance and Leasing Companies Criteria here Rating FI Subsidiaries and Holding Companies here National Scale Ratings Criteria here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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