Fitch Affirms Indoexim at 'BBB-'; Outlook Stable

Fitch Ratings has affirmed Lembaga Pembiayaan Ekspor Indonesia's (Indoexim) Long-Term Issuer Default Rating (IDR) at 'BBB-' with Stable Outlook. A full list of ratings is provided at the end of this commentary.

KEY RATING DRIVERS

IDRS, SUPPORT RATING AND SUPPORT RATING FLOOR

Indoexim's ratings reflect Fitch's view on the high probability of extraordinary state support, in time of need. This is because Indoexim is 100%-owned by the state and it plays an important policy role in supporting and developing Indonesia's export industry, an area of strategic importance to the country's economic development. The sovereign is likely to have the ability to support Indoexim in times of need given Indoexim's modest size in proportion to the domestic banking sector and Indonesian's GDP. The Stable Outlook reflects that of the Indonesian sovereign (BBB-/Stable). No Viability Rating is assigned as it is less meaningful to analytically assess such a policy-related institution on a standalone basis.

The government has also provided ordinary support to Indoexim in the course of business development, including several capital injections in the past few years (IDR2trn injection in 2010, IDR1trn each in 2014 and 2015). Fitch expects the government to inject another IDR4trn in 2016, which would lift Indoexim's Tier 1ratio to about 16% at end-2016. The government has committed to maintain Indoexim's capital at a minimum of IDR4trn and to distribute a maximum of 10% of its surplus as dividends and employee compensation, as stipulated in the Special Act 2/2009 to support the bank's policy role. Indoexim's funding facility from the Ministry of Finance and its quasi-sovereign status provide it with funding flexibility to mitigate funding risk during volatile market conditions.

DEBT RATINGS

Indoexim's euro medium-term notes (EMTN) are rated as the same level as its IDR in accordance with Fitch criteria.

RATING SENSITIVITIES

IDRS, SUPPORT RATING AND SUPPORT RATING FLOOR

Indoexim's ratings would be directly affected by changes to the sovereign rating. Any perceived weakening in the government's propensity to provide extraordinary support to Indoexim could also result in downward rating pressure, although Fitch believes this to be unlikely in the medium term.

DEBT RATINGS

Any changes in Indoexim's IDR would affect the issue rating.

The full list of rating actions follows:

• Long-Term IDR affirmed at 'BBB-'; Stable Outlook 
  
  
• Short-Term IDR affirmed at 'F3' 
  
  
• Support Rating Floor affirmed at 'BBB-' 
  
  
• Support Rating affirmed at '2' 
  
  
• Rating on USD1.5bn EMTN programme affirmed at 'BBB-' 
  
  
• Rating on USD500m euro medium-term notes under EMTN programme affirmed at 'BBB-'