Jakarta, February 24, 2025 - Fitch Ratings Indonesia has affirmed PT BFI Finance Indonesia Tbk's National Long-Term Rating at 'AA-(idn)'. The Outlook is Stable. Fitch has also affirmed the National Short-Term Rating at 'F1+(idn)' and local-currency issuance ratings at 'AA-(idn)'.
'AA' National Long-Term Ratings denote expectations of a very low level of default risk relative to other issuers or obligations in the same country or monetary union. The default risk inherent differs only slightly from that of the country's highest rated issuers or obligations.
'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
Standalone Strengths Drive Ratings: The ratings are driven by BFI Finance's sturdy market presence as Indonesia's largest standalone finance and leasing company. This is bolstered by above-peer profitability stemming from its specialisation in higher-yield used-car financing, adequate asset-quality management, low leverage and sufficient liquidity coverage, which has supported its debt repayment capacity across economic cycles.
Sustained Economic Prospects: Fitch projects Indonesia's GDP growth at 5.0% in 2025 and 4.9% in 2026. This, together with moderate inflation (2024: 1.6%), should support adequate growth and asset quality at local finance and leasing companies. Policy measures to support basic services for the lower-to middle-income population should boost credit demand and repayment capacity for the sector's predominant borrower segment. That said, ongoing government initiatives to improve budget efficiency could weigh on economic growth if not well calibrated.
Focus on Used-Vehicle Financing: BFI Finance is primarily a used-vehicle financier, focusing on middle-to lower-income clientele. It holds the largest domestic market share in used-car loans, while maintaining a modest 3%-4% market share in terms of total managed receivables for the overall finance and leasing sector. BFI Finance has also diversified into heavy-equipment financing in recent years. We expect its exposure to property and sharia financing to remain small relative to its total portfolio.
Resilient Asset Quality: Despite a riskier product mix, we expect BFI Finance's established underwriting practices and risk controls to mitigate asset-quality risk through economic cycles. Its non-performing financing ratio remained stable at 1.4% as of end-September 2024, significantly below the 2.6% industry average. Credit provisions amounting to nearly 260% of non-performing financing also provide a cushion against potential asset- quality deterioration.
Above-Industry Profitability: BFI Finance's core used-car financing business provides a high yield, which buffers against fluctuations in provisioning and funding costs. This, together with adequate asset-quality management, supports healthy profitability. Annualised pre-tax profit/average assets dipped to 7.6% in 9M24 (2023: 8.5%), due to a reduced exposure to higher-yielding but riskier used two-wheeler financing. Nonetheless, profitability remained above the industry average of 5.1% in 9M24.
Moderate Leverage: BFI Finance's capital structure is supported by its steady internal capital generation and conservative use of leverage. Its debt/tangible equity ratio was a modest 1.3x as of end-9M24, down from 1.5x at end-2023. We do not expect leverage to increase sharply as the Company expands, because internal capital generation should adequately support planned growth. BFI Finance's moderate leverage allows it to maintain sufficient buffers against any asset quality and liquidity stress.
Adequate Liquidity Buffers: BFI Finance maintains adequate liquidity to cover short-term debt, backed by a substantial cash reserve and undrawn committed facilities. Its liquidity coverage ratio, calculated as cash and undrawn committed facilities/short-term debt maturities, remains higher than that of many larger Indonesian finance and leasing peers. Its collection of short-term receivables further support liquidity and adequately covers its short-term debt obligations.
BFI Finance primarily relies on secured or partially secured funding, but enjoys access to a diverse and expanding pool of lenders. The issuance of its first fully unsecured bonds in 2024 also implies lenders have confidence in the Company.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
Significant asset-quality deterioration, as indicated by a non-performing financing ratio sustained above 2%, substantially higher leverage or a deterioration in liquidity buffers that leads to short-term asset-liability mismatches, would be negative for the ratings. On the latter, a sustained decline in the liquidity coverage ratio to below 2x, as measured by (cash + one year's expected receivables inflow discounted by 35% + unutilised committed facilities)/short-term debt maturities, could prompt negative rating action.
Sustained deterioration in BFI Finance's franchise, as indicated by a persistent decline in market share or operating income, may be negative for the ratings. A notable rise in risk appetite, such as loosened underwriting standards, a rapid expansion into untested or riskier products or recurring operational incidents, such as cyberattacks that signal poor risk controls, would also be negative for the ratings.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
Positive rating action is only possible if we believe that the operating environment for Indonesia's finance and leasing companies has strengthened significantly, perhaps driven by an upgrade in Indonesia's sovereign rating (BBB/Stable) or advancements in the sector's regulatory framework, coupled with a sustainable improvement in BFI Finance's franchise and financial profile. However, we do not expect such broad-based developments to occur within the next one to two years.
DEBT AND OTHER INSTRUMENT RATINGS: KEY RATING DRIVERS
BFI Finance's bonds are rated at the same level as its National Long-Term Rating, as they represent its direct obligations and rank pari passu with its other obligations in the same debt class. BFI Finance has issued bonds on a fully unsecured basis since 2024. Prior issued bonds were 50% secured against BFI Finance's receivables, but we do not view this as providing credit enhancement under our criteria for entities in Indonesia.
DEBT AND OTHER INSTRUMENT RATINGS: RATING SENSITIVITIES
BFI Finance's bond ratings are sensitive to changes in its National Long-Term Rating. Any negative or positive action on the issuer's National Long-Term Rating will result in corresponding action on the bond ratings.
Additional information is available on Fitchratings.