Fitch Ratings Indonesia has assigned PT Shinhan Indo Finance (SIF) a first-time National Long-Term Rating of 'AA(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.
Key Rating Drivers
Member of Shinhan Financial Group: SIF is an Indonesian finance and leasing company that deals in financial leases for commercial vehicles and heavy equipment. Its rating is driven by our expectation of extraordinary support from its majority shareholder, Shinhan Card Co., Ltd. - South Korea's largest credit card company - and ultimate parent, Shinhan Financial Group Co., Ltd. (SFG), if needed. Shinhan Card is fully owned by SFG, a financial holding company with subsidiaries in several segments, the largest being Shinhan Bank (A/Stable/a).
We assess the shareholders' credit profiles as significantly stronger than SIF's on a standalone basis.
Minority Shareholder Benefits: Shinhan Card owns 76.3% of SIF, with the remaining shareholding held by various companies associated with the Indomobil group, the automotive arm of the local conglomerate, Salim group. The largest minority shareholder is PT Indomobil Sukses Internasional Tbk with a 13.1% stake. SIF derives significant benefits from its relationship with Indomobil group, whose business referrals comprise the majority of its bookings. Indomobil group owned 49.99% of SIF prior to a 2022 capital injection from Shinhan Card.
Part of Group's Diversification Strategy: We believe Shinhan Card and the broader Shinhan group have the propensity to support SIF, taking into consideration the brand sharing, record of capital support and majority stake. This is further bolstered by SIF's role as the non-bank financing arm for SFG in Indonesia - an attractive market for the parent group. Several SFG companies have established Indonesian subsidiaries, the largest of which is PT Bank Shinhan Indonesia (AAA(idn)/Stable).
Limited Contribution to Parent: Our assessment of shareholder support is constrained by SIF's limited role in the parent's overall business. This stems from its small absolute size, limited market share in Indonesia's finance and leasing sector and mixed performance since its acquisition by Shinhan Card in 2015. There are limited synergies between SIF and other SFG entities, with SIF's financial lease business mainly focused on supporting Indomobil group's commercial vehicle and heavy equipment business.
Branding Links, Support Record: Our expectation for support also considers the reputational risk to Shinhan group should SIF default. This is in light of the common branding, shareholder guarantees on most of SIF's debt and record of support. Shinhan Card provided a IDR352 billion equity injection to shore up SIF's capital base in 2022, raising the parent's shareholding to 76.3%, from 50.01%.
Modest Relative Size: We believe Shinhan Card has the ability to support SIF, if required, given the latter's modest size - at around 0.3% of its majority shareholder's consolidated assets as of 2022.
Standalone Profile Weaker than Support-Driven Rating: SIF's standalone credit profile does not directly drive its rating, but we believe it is markedly weaker than its support-driven rating because of the company's limited franchise and fragile profitability. Pretax income/average assets averaged at around -2.0% over 2019-2022, despite recovering to 2.5%, annualised, in 9M23. Capitalisation is supported by the capital injection from Shinhan Card, with debt/tangible equity of 3.6x at end-2022, while funding access is aided by shareholder guarantees.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
SIF's rating is sensitive to any deterioration in the credit profiles of Shinhan Card and SFG. This could be driven by a rating downgrade on Shinhan Bank as the group's largest operating entity, or a substantial deterioration in SFG's consolidated risk profile - such as due to weaker performance by other group entities or a material increase in double leverage.
We may also take negative rating action if we perceive a weakening in shareholder support propensity by Shinhan group. This could be indicated by a decline in parent guarantees, a name change that reduces the brand similarity between SIF and Shinhan group or a large decline in Shinhan Card's shareholding. A fall in shareholding to below 50% could lead to a multiple-notch downgrade, especially if other links to Shinhan group also weaken.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
Positive rating action may stem from a strengthening in Shinhan Card's credit profile as the likely support provider. This could, in turn, be driven by an improvement in Fitch's assessment of SFG's credit profile.
A stronger perceived propensity by Shinhan Card to support SIF would also be positive for the rating. This could be due to a large increase in Shinhan Card's shareholding or SIF demonstrating a consistent record of positive contribution to its parent, building a more significant domestic franchise on a sustainable basis or developing more meaningful synergies with other Shinhan group entities.
SHINHAN FINANCIAL GROUP CO., LTD. 
