Fitch affirms mpm finance at a (idn); outlook stable

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(The following statement was released by the rating agency) JAKARTA/TAIPEI/SINGAPORE, December 04 (Fitch) Fitch Ratings Indonesia has affirmed the National Long-Term Rating of PT Mitra Pinasthika Mustika Finance (MPM Finance) at 'A-(idn)'. The Outlook is Stable. Fitch also assigned the company a National Short-Term Rating of 'F1(idn)'. MPM Finance's ratings reflect Fitch's view of the company's linkage with its controlling shareholder, PT Mitra Pinasthika Mustika Tbk (MPM; BB-/Stable) and that MPM is highly likely to provide support to MPM Finance in times of need. 'A' National Ratings denote expectations of low default risk relative to other issuers or obligations in the same country. However, changes in circumstances or economic conditions may affect the capacity for timely repayment to a greater degree than is the case for financial commitments denoted by a higher rated category. '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. On Fitch's National Rating scale, this rating is assigned to the lowest default risk relative to others in the same country. Where the liquidity profile is particularly strong, a "+" is added to the assigned rating. KEY RATING DRIVERS Fitch's view of a high probability of timely support from MPM to MPM Finance, if needed, is premised on the latter's strategic importance to its parent's automotive business as a provider of cars and motorcycle financing. Support is reinforced by MPM's ownership of 60% of MPM Finance and business linkage through MPM's well-established automotive distribution business. MPM Finance provided new financing to around 15% of MPM's motorcycle sales in 2014. The entry of Japan-based financing company JACCS as a new shareholder in MPM Finance has provided the company with the benefits of JACCS' technical and funding support. Fitch expects MPM Finance's asset quality to be under pressure given slower growth in the Indonesian economy, higher interest rates, tighter competition, and a prolonged downturn in the commodity sector, to which MPM Finance is highly exposed. Asset quality has deteriorated mainly due to the weaker finances of borrowers involved in commodity sectors. Fitch also expects MPM Finance's larger portion of higher-risk motorcycle financing to put pressure on asset quality. MPM Finance has implemented measures to improve its asset quality, including credit scoring and establishment of a special risk directorate. Despite an increase in net interest margin, MPM Finance's underlying profitability weakened with return on assets declining to 2.5% at end-3Q14 from 3% at end-2013, curbed by higher credit cost due to asset quality deterioration. Fitch expects profitability to remain subdued in the near future because interest rates are likely to remain high and a slowdown in economic growth will decelerate financing growth and lower recovery rates. Capitalisation remained solid with debt/equity ratio improving to 2x at end-3Q14 from 4x at end-2013 thanks to the recent IDR510bn capital injection by JACCS in May 2014. This capital infusion will support the company's business development. RATING SENSITIVITIES Any decline in MPM's ownership or support for MPM Finance, or a weakening of MPM Finance's strategic importance to MPM would exert downward pressure on the rating. Notable increase of contribution by MPMF to MPM's vehicle business development that brings to stronger linkage between the parent and subsidiary might have a positive impact on MPM Finance's ratings. Contacts: Primary Analyst Ira Febrianty Analyst PT Fitch Ratings Indonesia Financial Institution DBS Bank Tower 24th Floor, Suite 2403 Jl. Prof. Dr. Satrio Kav 3-5 Jakarta, Indonesia 12940 +62 21 2988 6810 Committee Chairperson Jonathan Lee Senior Director +886 2 8175 7601 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.this site Note to editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(idn)' for National ratings in Indonesia. Specific letter grades are not therefore internationally comparable. Additional information is available at this site Applicable criteria, "Global Financial Institutions Rating Criteria", dated 31 January 2014, "Finance and Leasing Companies Ratings Criteria", dated 12 December 2012, "Rating FI Subsidiaries and Holding Companies", dated 10 August 2012, and "National Scale Ratings Criteria", dated 30 October 2013, are available at this site Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria here Finance and Leasing Companies Criteria here Rating FI Subsidiaries and Holding Companies here National Scale Ratings Criteria here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW. FITCHRATINGS. COM'. 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