Fitch Ratings Indonesia has affirmed PT Bank QNB Indonesia Tbk's National Long-Term Rating at 'AAA(idn)'.

The Outlook is Stable. A full list of rating actions follows below.

'AAA (idn)' National 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.

Key Rating Drivers

Support-Driven Rating: QNB Indonesia's National Long-Term Rating reflects Fitch's expectation of a high likelihood of extraordinary support from the bank's higher-rated parent, Qatar National Bank (Q.P.S.C.) (QNB, A/Positive/bbb+), if required. QNB owns 92.5% of QNB Indonesia as of end-3M23.

Parent's IDR Underpins Rating: QNB Indonesia's rating is anchored to its parent's Long-Term Issuer Default Rating (IDR), as we believe support would be available and allowed to flow from the Qatari sovereign (AA-/Positive) to its Indonesian subsidiary through QNB, if required. Our view is based on QNB Indonesia's strategic importance to QNB group's overseas expansion, especially in south-east Asia. QNB's IDRs are, in turn, driven by Fitch's expectation of the Qatari sovereign's ability and propensity to support its banks.

High Ability to Support: We believe QNB has high ability to provide support to QNB Indonesia, based on its own support-driven credit profile and the relative sizes of the parent and subsidiary. QNB Indonesia's assets accounted for less than 1% of QNB's total consolidated assets at end-2022.

Strategically Important Subsidiary: Fitch views QNB Indonesia as strategically important to QNB group. QNB Indonesia is its sole subsidiary in south-east Asia that provides access to Indonesia's favourable economic growth and demographics, which ultimately supports QNB's strategic focus on overseas expansion.

Our assessment of the parent's high propensity to extend support is also based on the strong synergy between the two entities. This is reflected in their high alignments in products and services, operations, risk management and main personnel, as well as the provision of funding and capital support in the past few years, shared name and brand, and the parent's majority ownership.

Weak Asset Quality, Profitability: QNB Indonesia's National Long-Term Rating is not driven by its standalone credit profile, which is constrained by its small franchise, above-average risk appetite, and weak asset quality and profitability metrics. The bank reported a IDR401 billion loss in 2022 due to high credit costs and a declining loan balance. However, it benefits from ordinary support from QNB, which results in an adequate capitalisation and funding profile.

Rating Sensitivities

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

A downgrade of QNB Indonesia's National Long-Term Rating would be likely to arise from a weakening in its overall credit profile relative to the universe of entities on Indonesia's National Rating scale. This could result from a two-notch downgrade of QNB's Long-Term IDR to 'BBB+', but Fitch believes this to be a remote prospect in the near term in light of the positive outlook on the parent's rating.

A more likely downgrade driver would be a material reduction in QNB's propensity to provide support, either perceived or real. This could be caused by QNB Indonesia's prolonged weak performance or future prospects, limiting its long-term contribution to the parent's strategic plans. Another indication of reduced strategic value, and therefore weakened support propensity, could be a major change in ownership, such as a decline to below 50%. However, we view these as less likely in the near term due to QNB Indonesia's role in the group and its integration with the parent.

A downgrade could also occur if we believe support from the Qatari government is less likely to flow to QNB Indonesia. This would lead us to link the subsidiary's rating to QNB'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 QNB Indonesia's National Rating as it is 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

QNB Indonesia's National Long-Term Rating is credit-linked to the parent's Long-Term IDR, based on our expectation that extraordinary support will flow from the Qatari sovereign to QNB Indonesia through QNB.

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