OREANDA-NEWS. Fitch Ratings Indonesia has affirmed PT Mandiri Tunas Finance's (MTF) National Long-Term Rating at 'AA(idn)' and National Short-Term Rating at 'F1+(idn)'. The Outlook is Stable.

MTF's ratings reflects Fitch's assessment of continued support from and linkage with its controlling shareholder, PT Bank Mandiri (Persero) Tbk (Mandiri; AAA(idn)/Stable). The Stable Outlook reflects Fitch's expectation that Mandiri will continue to support MTF in case of need.

'AA' National Ratings denote expectations of very low default risk relative to other issuers or obligations in the same country. The default risk inherently differs only slightly from that of the country's highest rated issuers and obligations.

'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

MTF's ratings reflect Fitch's expectation of strong probability of support from its parent in times of need. The ratings also take into account MTF's role as a strategically important subsidiary in Mandiri's consumer business as well as strong linkage between the parent and subsidiary. Mandiri's support is manifested in the common brand name it shares with MTF, 51% ownership, the provision of funding and operational alignment in risk management, MTF's utilisation of Mandiri's branch network and management control.

MTF's importance to Mandiri is reflected in its growing contribution to the bank's total consumer loans. The contribution increased to around 40% at end-1H15 from 38% at end-2014, driven by growth in MTF's loan book.

MTF's will remain focused on providing financing for new passenger cars that are mostly from Japanese brands. The substantial joint financing with Mandiri has enabled MTF to offer more competitive lending rates to its customers while managing its gearing ratio below the regulatory maximum of 10x. Joint financing formed about 70% of MTF's total receivables. Fitch expects this stable funding source to help MTF mitigate the liquidity risk that arises from its reliance on wholesale funding.

Asset quality remained manageable thus far with the NPL ratio remaining at 1% of total net managed receivables at end-1H15. Nonetheless, Fitch expects MTF to struggle to maintain its asset quality in the near to medium term amid a more challenging operating environment with high interest rates, softer economic growth and weak automotive sales. MTF managed to report satisfactory profitability in the first six months of 2015 because the company benefited from using Mandiri's branches and network and joint financing with its parent, which helped to keep funding and operating expenses under control.

RATING SENSITIVITIES

Any significant dilution in Mandiri's ownership or perceived weakening of support for MTF would exert downward pressure on MTF's ratings, including the possibility of multi-notch downgrades. However, Fitch sees this prospect as remote in the foreseeable future; given MTF is strategically important to Mandiri, especially for the development of its consumer business.

A material increase in ownership, leading to greater integration between parent and subsidiary, and stronger control by Mandiri of MTF could narrow the rating differential between the two entities.