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Rating Action:

Moody's affirms ratings of four Indonesian financial institutions; outlook stable

15 May 2020

Singapore, May 15, 2020 -- Moody's Investors Service has today affirmed the Baa2 long-term local and foreign currency issuer ratings of Astra Sedaya Finance (P.T.) (ASF), Federal International Finance (P.T.) (FIF), and Adira Dinamika Multi Finance Tbk (P.T.) (ADMF). Moody's has also affirmed the Baa2 long-term local and foreign currency deposit ratings of Bank Danamon Indonesia TBK (P.T.) (Danamon).

At the same time, Moody's has affirmed the baa3 Baseline Credit Assessment (BCA) and baa2 adjusted BCA of Danamon. The ba2 Standalone Assessments of ASF, FIF and ADMF remain unchanged.

The outlooks, where applicable, remains stable.

A list of affected ratings and assessments is provided at the end of this press release.

RATINGS RATIONALE

The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets. The vehicle financing industry in Indonesia has been one of the sectors affected by the shock, given its exposures to the borrowers with susceptibility to weak economic activities and high reliance on confidence-sensitive borrowings.

Moody's regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety. Today's action takes into consideration the negative impact on ASF, FIF, ADMF and Danamon of the breadth and severity of the shock.

To curb the coronavirus outbreak, the government of Indonesia (Baa2 stable) has rolled out domestic travel and social restrictions, such as a ban on public gatherings of more than five people. These restrictions, coupled with the fall in global demand for commodities, have led to a sharp drop in domestic business activity.

While the government has simultaneously implemented economic measures - which include a stimulus package, reductions in policy rate and reserve requirements, as well as regulatory relaxations on debt restructuring rules, these measures will only help to soften, but not offset the economic disruptions.

STANDALONE ASSESSMENTS OF ASF, FIF AND ADMF REMAIN UNCHANGED

The maintenance of the ba2 Standalone Assessments of ASF, FIF and ADMF reflects Moody's assessment that the three companies will be able to withstand the immediate stress caused by the coronavirus outbreak.

ASF, FIF and ADMF are the largest auto financiers in Indonesia with dominant distribution networks and strong franchises that are currently unmatched domestically.

While Moody's expects the asset quality and profitability of the three companies to take a hit because of the coronavirus outbreak, their strong capitalization will provide ample buffers to absorb potential losses and in the longer term, help them resume normal business operations and restore their solvency when the crisis passes.

Furthermore, they will likely continue to have access to funding, underpinned by their well-established payment track records, as well as the strong credit standings and reputations of their respective parents.

In the near term, Moody's anticipates that the asset quality at the three finance companies will weaken considerably, given that their borrowers - particularly those who are from the low-to middle-income segments - will likely be affected by rising furloughs and layoffs caused by the coronavirus disruptions. Loan restructuring and repayment moratoriums will provide temporary relief to the companies but could still lead to increases in credit losses when some of these borrowers eventually default.

The higher credit losses, at the same time as lower revenues and potentially higher funding costs, will also exert downward pressure on the companies' profitability.

The liquidity of ASF, FIF and ADMF will also come under pressure due to heightened market volatility and slower repayments, although their strong access to funding will likely mitigate these risks. Like other finance companies in Asia, the Indonesian vehicle financiers are vulnerable to financial market volatility because they cannot accept deposits and therefore rely solely on confidence-sensitive borrowings for funding. They also tend to keep low cash balances and depend more on their borrowers' repayments and securing new borrowings to meet liability obligations and disburse new financing.

AFFIRMATION OF DANAMON'S BCA

The affirmation of Danamon's baa3 BCA takes into account the bank's strong capitalization, which will provide ample buffers to absorb credit losses as a result of the coronavirus outbreak. The bank will likely maintain its strong access to deposits and funding, underpinned by a well-established domestic franchise and indirect support from its majority shareholder, MUFG Bank, Ltd. (MUFG, A1 stable, a3).

In the near term, Moody's also expects Danamon's asset quality to come under significant pressure, given that auto loans managed by subsidiary ADMF accounted for more than one third of the bank's total loans as of 31 March 2020. The bank's SME segment will also be vulnerable to the economic shock, as the liquidity of small businesses are usually insufficient to withstand a sudden drop in revenue.

Danamon's profitability will also weaken as well, because of rising credit costs and falling loan growth.

AFFIRMATION OF RATINGS

The affirmation of Danamon's Baa2 long-term deposit ratings takes into account the bank's baa2 adjusted BCA, which incorporates affiliate support from parent MUFG.

Danamon's baa2 adjusted BCA is one notch higher than its baa3 BCA, based on Moody's assessment that the bank will receive support from MUFG in times of need. Moody's has also raised the level of support from MUFG to "Very High" from "High", taking into consideration MUFG's 94.1% ownership of Danamon, as well as MUFG's long-term strategy to expand in faster-growing markets such as Indonesia.

While Moody's also incorporates a "High" level of government support into Danamon's ratings, they do not benefit from further uplift because the bank's adjusted BCA is already at the same level as Indonesia's sovereign rating.

The affirmation of ASF, FIF and ADMF's Baa2 ratings reflects Moody's assessment that the parents of these companies will provide a "Very High" level of support to them in times of need, given the strategic importance of these companies to their parents.

Specifically, ASF and FIF are instrumental in driving sales at Astra International's motorcycle and car businesses respectively, besides being fully-owned by the conglomerate. For ADMF, the company represents one of Danamon's core businesses, apart from being nearly 100% owned by the bank. As a result, the Baa2 ratings of the three companies are three notches higher than their ba2 Standalone Assessments.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

An upgrade of the ratings is unlikely because the ratings of the four financial institutions are already at the same level as the Government of Indonesia's sovereign rating (Baa2 stable).

Moody's could downgrade the ratings if the parents' ratings are downgraded, or there is any indication of a decline in support extended by these parents. Moody's could also downgrade the ratings and standalone credit profiles of the four financial institutions if the extent of deterioration in their solvency and liquidity is more severe than what Moody's currently anticipates.

The principal methodology used in rating Adira Dinamika Multi Finance Tbk (P.T.), Astra Sedaya Finance (P.T.) and, Federal International Finance (P.T.) was Finance Companies Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187099. The principal methodology used in rating Bank Danamon Indonesia TBK (P.T.) was Banks Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147865. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

Astra Sedaya Finance (P.T.), headquartered in Jakarta, reported total assets of IDR36.1 trillion on 31 March 2020.

Federal International Finance (P.T.), headquartered in Jakarta, reported total assets of IDR37.6 trillion on 31 March 2020.

Adira Dinamika Multi Finance Tbk (P.T.), headquartered in Jakarta, reported total assets of IDR35.1 trillion on 31 December 2019.

Bank Danamon Indonesia TBK (P.T.), headquartered in Jakarta, reported total assets of IDR185.1 trillion on 31 March 2020.

List of Affected Ratings:

..Issuer: Astra Sedaya Finance (P.T.)

....Long-term Issuer Rating (Foreign and Local Currency), Affirmed Baa2

....Short-term-term Issuer Rating (Foreign and Local Currency), Affirmed P-2

....Senior Unsecured Medium-Term Note Program (Foreign Currency), Affirmed (P)Baa2

....Outlook, Remains Stable

..Issuer: Federal International Finance (P.T.)

....Long-term Issuer Rating (Foreign and Local Currency), Affirmed Baa2

....Short-term-term Issuer Rating (Foreign and Local Currency), Affirmed P-2

....Senior Unsecured Medium-Term Note Program (Foreign Currency), Affirmed (P)Baa2

....Senior Unsecured Regular Bond/Debenture (Foreign Currency), Affirmed Baa2

....Outlook, Remains Stable

..Issuer: Adira Dinamika Multi Finance Tbk (P.T.)

....Long-term Issuer Rating (Foreign and Local Currency), Affirmed Baa2

....Outlook, Remains Stable

..Issuer: Bank Danamon Indonesia TBK (P.T.)

....Baseline Credit Assessment, Affirmed baa3

....Adjusted Baseline Credit Assessment, Affirmed baa2

....Long-term Counterparty Risk Assessment, Affirmed Baa1(cr)

....Short-term Counterparty Risk Assessment, Affirmed P-2(cr)

....Long-term Counterparty Risk Rating (Foreign and Local Currency), Affirmed Baa1

....Short-term Counterparty Risk Rating (Foreign and Local Currency), Affirmed P-2

....Long-term Deposit Rating (Foreign and Local Currency), Affirmed Baa2, with stable outlook

....Short-term Deposit Rating (Foreign and Local Currency), Affirmed P-2

....Outlook, Remains Stable

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The below contact information is provided for information purposes only. Please see the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead rating analyst and the Moody's legal entity that has issued the ratings.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Jeffrey Lee
Asst Vice President - Analyst
Financial Institutions Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Graeme Knowd
MD - Banking
Financial Institutions Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

No Related Data.
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