Fitch Ratings Indonesia has affirmed PT Bank ICBC Indonesia's (ICBCI) National Long-Term Rating at 'AAA(idn)' and National Short-Term Rating at 'F1+(idn)'.

The Outlook on its National Long-Term Rating is Stable.

'AAA' National Long-Term Ratings denote the highest rating assigned by the agency in 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 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

Support-Driven Ratings: ICBCI's National Ratings reflect our view of a high likelihood of extraordinary support from the bank's higher-rated parent, Industrial and Commercial Bank of China Limited (ICBC; A/Stable/bbb), if needed. ICBC has close to full ownership of ICBCI with a 98.6% stake.

Linked to Parent's IDR: The parent's Long-Term Issuer Default Rating (IDR) underpins the subsidiary's rating as we believe that extraordinary support would be allowed to flow from the Chinese sovereign to the Indonesian subsidiary through ICBC in times of need. This is based on our view of ICBCI's strategic importance to ICBC's growth prospect in ASEAN's largest economy. However, we believe support is most likely to still come from the parent's own financial resources.

High Ability to Support: ICBC, as the world's largest bank, has a strong ability to support ICBCI, considering its high credit rating and the subsidiary's relatively small size. This is counterbalanced by potential constraints on transfer and convertibility risks, reflected in Indonesia's Country Ceiling of 'BBB'. ICBCI's total assets and equity accounted for only 0.1% of the group's assets and equity at end-2022.

Strong Support Propensity: We believe ICBC has high propensity to support ICBCI given our view that Indonesia remains a strategically important market that supports the group's overseas strategy, especially in trade and investment flows. Our assessment is also underpinned by potential reputational damage to ICBC's regional franchise if ICBCI were to default, considering the shared common branding.

Standalone Credit Profile: ICBCI's standalone credit profile does not drive its ratings. It mostly reflects the bank's nominal domestic franchise, higher risk appetite, and lingering asset quality issues. This is counterbalanced by its satisfactory profitability and funding profile which benefit from its association with the ICBC group.

Rating Sensitivities

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

A material weakening in ICBC's ability to support ICBCI could result in a downgrade of ICBCI's ratings. Any significant weakening in ICBC's propensity to support its subsidiary may also put downward pressure on the rating. This could stem from a very significant deterioration in the group's perception of the strategic value of having a subsidiary in one of the largest economies in ASEAN such as Indonesia, or from a material change in ownership.

A downgrade of ICBCI's National Long-Term Rating could also arise from a weakening in its overall credit profile relative to the universe of entities rated on Indonesia's National Rating scale.

A downgrade could also occur if we believe that support from the Chinese sovereign is less likely to flow to ICBCI. This would lead us to link the subsidiary's rating to ICBC's 'bbb' Viability Rating rather than the 'A' Long-Term IDR. However, Fitch believes these prospects are unlikely in the near-to-medium term.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

There is no rating upside for the National Ratings as they are already at the highest point on the scale.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

Public Ratings with Credit Linkage to other ratings

ICBCI's rating is credit-linked to the parent's Long-Term IDR, based on our expectation that extraordinary support would be allowed to flow from the Chinese sovereign.

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