Fitch Ratings Indonesia has affirmed PT CIMB Niaga Auto Finance's (CNAF) National Long-Term Rating at 'AA(idn)' and National Short-Term Rating at 'F1+(idn)'.

The Outlook is Stable.

'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

Support-Driven Ratings: CNAF's ratings are driven by Fitch's expectation of a high probability of extraordinary support from its parent, PT Bank CIMB Niaga Tbk, and, if necessary, its ultimate parent, Malaysia-based CIMB Group Holdings Berhad.

Parent's Auto-Financing Arm: We consider CNAF to be a strategically important subsidiary of CIMB Niaga, due to its focus on auto loans - a key product within the parent's consumer-financing business. Auto loans booked by CNAF have been an important growth engine for the parent in the past two years, especially in light of slowing growth in other segments. Auto loans contributed 17.5% of the parent's consolidated consumer loans at end-9M22, a healthy expansion from 2019's 11.9%.

High Propensity to Support: Our view of shareholder support is underpinned by CIMB Niaga's majority ownership of CNAF, shared branding, high level of management and operational integration, and the provision of funding to the subsidiary - all of which would cause high financial and reputational costs to CIMB Niaga should the subsidiary default.

Majority Ownership Despite Sell-Down: CIMB Niaga's shareholding in CNAF declined to 83% in 2022, from near-full ownership, to comply with a 85% regulatory cap on the direct and indirect foreign ownership of financing companies. However, the 17% shareholding was sold to CIMB Niaga and CNAF's employees and, hence, we believe the sale does not affect CIMB Niaga's propensity to support CNAF.

Stronger Parent's Credit Profile: Fitch views that CIMB Niaga would have considerable ability to support CNAF due to its significantly larger balance sheet and stronger credit profile. CNAF's assets and equity comprised a small share of its parent's consolidated assets and equity, at 1.5% and 3.4%, respectively, at end-2021.

Acceptable Standalone Profile: CNAF's standalone credit profile does not drive its ratings, but reflects its modest franchise and concentration in a relatively cyclical consumer-lending segment. This is balanced by its better-than-peer asset quality and profitability, acceptable leverage and funding access that benefits from its association with CIMB Niaga.

Rating Sensitivities

Factors that could, individually or collectively, lead to negative rating action/downgrade:

Any material deterioration in CIMB Niaga's overall credit profile would result in negative action on CNAF's rating.

Fitch may also downgrade the National Long-Term Rating if we perceive that the parent's propensity to support its subsidiary has weakened. This may be driven by CNAF's reduced strategic importance to the parent and sustained weakening in CNAF's performance and contribution to CIMB Niaga.

Increasing management independence, a further decline in CIMB Niaga's ownership, particularly to another major shareholder with material management influence, or a meaningful reduction in ordinary funding support from CIMB Niaga that could signify diminishing ties between the two entities could also lead to a downward reassessment of its importance to the parent bank's business.

The National Short-Term Rating would be resilient to at least a one-notch downgrade of the National Long-Term Rating.

Factors that could, individually or collectively, lead to positive rating action/upgrade:

An upward assessment of CIMB Niaga's overall credit profile would be likely to lead to a corresponding upgrade of CNAF's National Long-Term Rating. This is provided that conditions underpinning CIMB Niaga's propensity to support CNAF remain intact.

Fitch may also take positive action on the National Long-Term Rating if we believe that CNAF has become even more integral and strategically important to CIMB Niaga's overall business. This may occur if CNAF's earnings contribution rises substantially or if the parent increasingly promotes the role of auto loans in its group strategy beyond its current scope.

There is no upside to the National Short-Term Rating, as it is at the highest point of the rating 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

CNAF's National Ratings are linked to the overall credit profile of its major shareholder, CIMB Niaga, and ultimate parent, CIMB.

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