Fitch Assigns 'A-(idn)' National Rating To PT Wahana Ottomitra Multiartha Tbk

Fitch Ratings has today assigned a National Long-term rating of 'A-(idn)' (A minus(idn)) to Indonesia-based PT Wahana Ottomitra Multiartha (WOMF). The Outlook for the rating is Stable. The company's rating reflects its strong market position as the third largest motorcycle financing company in Indonesia with 6.8% market share of new motorcycles sold in 2006 and support from its parent, PT Bank Internasional Indonesia Tbk (BII) (rated 'BB-' (BB minus)/'AA-(idn) (AA minus)), but noting the deterioration in its asset quality and still weak provision cover.

The worsening macroeconomic conditions in Indonesia which included fuel price hike in October 2005 caused the company's NPLs (defined as balances overdue more than 90 days) to rise from 1.7% of net managed receivables at end-2004 to 3.4% at end-2005 and 6.4% at end-2006. Fitch also believed that the rapid expansion in its motorcycle financing business, with net managed receivables growth at 47% CAGR over 2004-06, and competitive pressures that led to a lowering in down payment requirements (from 26% in 2004 to 22% in 2005 and 21% in 2006), contributed further to the weakening in asset quality. Provision cover was low at 1.5% of net managed receivables although WOMF increased its provisioning for new receivables to 3.5% (from 2% in 2005), which was more in line with estimated net credit losses of 3.8% of net managed receivables in 2004-06.

The weakening asset quality put additional pressure on the company's profitability, which saw net interest margins decline to 7.1% in 2006 from 13.6% in 2005 due to higher funding costs, non-accrual interest drag from higher NPLs, and a higher portion of new receivables recognised in the H206. Provision charges increased by 63.5% to IDR119.5bn, while losses on repossessed assets also increased 25.0% to IDR121.7bn in 2006. As a result, net income declined 45% from 2005 to IDR91bn in 2006. Accordingly, ROA also fell to 2.4% in 2006 from 6.1% in 2005.
With the assistance from BII however, WOMF has continued to improve its risk management practices. Among the key changes are the assignment of a senior member of BII staff at the director level to oversee the risk management functions, the mentioned application of more stringent provisioning for new receivables, and the ongoing development of a credit scoring system. Combined with the improved macroeconomic outlook in Indonesia, with the lower inflation and interest rate conditions since H206, asset quality is generally expected to improve in 2007.

Funding for its receivables was split between 66% bank borrowings, 24% from bonds issued and 10% from capital, as finance companies in Indonesia are not allowed to engage in any deposit-taking. At end-2006, there were about 13 financial institutions providing about IDR6.8trn in credit lines in the form of channeling, joint financing, and direct bank loans, of which the share of financing from BII was the largest at 29%.

Established in 1982, WOMF is currently 46.99% owned by BII with IFC holding 15.01% and DBS Nominees 5%.