Fitch Ratings Indonesia has assigned PT Bank ICBC Indonesia (ICBCI) a National Long-Term Rating of 'AAA(idn)' and National Short-Term Rating of '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 Fitch's view of a high likelihood of timely extraordinary support from the bank's higher-rated parent, Industrial and Commercial Bank of China Limited (ICBC; A/Stable/bbb), if required. ICBC has near-full ownership of ICBCI, at 98.6%.

Anchored to Parent's IDR: The subsidiary's rating is linked to its parent's Long-Term Issuer Default Rating (IDR), as we deem that extraordinary support would be allowed to flow from the Chinese sovereign to its Indonesian subsidiary through ICBC, if necessary. This is based on our view of ICBCI's strategic importance to ICBC's penetration in Indonesia (BBB/Stable), ASEAN's largest economy. However, potential support would most likely still come from the parent's own financial resources.

Considerable Ability to Support: Fitch believes that ICBC, which is the world's largest bank, has a strong ability to support ICBCI, considering its high credit rating and ICBCI'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 accounted for just 0.1% of the group's assets as of September 2022.

High Support Propensity: We believe that ICBC has a high propensity to support ICBCI, given our view that Indonesia is a strategically important market for ICBC. The Indonesian subsidiary is an important part of the group's overseas strategy, especially in supporting trade and investment flows in the country. Our assessment is also underpinned by potential reputational damage to ICBC's regional franchise if ICBCI were to default, as the two share a common branding.

Standalone Credit Profile: ICBCI's standalone credit profile does not drive its support-driven ratings. It incorporates the bank's nominal domestic franchise, heightened risk appetite, and lingering asset quality issues, as reflected in its high portion of restructured loans. This is counterbalanced by ICBCI's 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 its business prospects in 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.

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.

Date of Relevant Committee

13 December 2022

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 support-driven National Long-Term 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.

RATING ACTIONS

Entity / Debt

Rating

Prior

PT Bank ICBC Indonesia

Natl LT

AAA(idn)

New Rating

WD(idn)

Natl ST

F1+(idn)

New Rating

WD(idn)

Page

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