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TEXT-Fitch Affirms Taishin Group's Ratings

(The following was released by the rating agency)

TAIPEI/HONG KONG/SINGAPORE, October 09 (Fitch) Fitch Ratings has affirmed the ratings of Taishin Financial Holdings Company (TFHC) and its subsidiaries, Taishin International Bank (TIB, the principal subsidiary of TFHC) and Taishin Securities Co., Ltd (TSS). The Outlooks are all Stable. At the same time, Fitch has withdrawn the Support Rating of TFHC as it is no longer considered by Fitch to be relevant to the agency's rating coverage. A full rating breakdown can be found at the end of this commentary.

TIB's Issuer Default Ratings, National Ratings and Viability Rating reflect its well-established domestic consumer banking franchise, improved risk infrastructure and adequate liquidity. The ratings are constrained by TIB's moderate-sized franchise, modest capital buffer and concentrated loan portfolio.

Fitch expects the bank's financial performance to remain stable into 2013, underpinned by its focus on prime and super prime segments and sound asset quality. Fitch may consider negative rating action if TIB continues to pursue rapid lending growth and further increases high-risk exposures that could put pressure on core capitalisation. TIB's Support Rating of '3' and Support Rating Floor of 'BB+' reflect Fitch's expectation of moderate state support in case of need, given the bank's moderate systemic importance in Taiwan.

TFHC's ratings are mostly driven by the credit profile of TIB. Any changes in TIB's ratings will most likely have a similar effect on TFHC. Based on Fitch's methodology for rating bank holding companies, TFHC's IDRs and National ratings are notched down one level below TIB's to reflect the former's reduced but still high leverage. Meanwhile, any aggressive investments or acquisitions by TFHC leading to significant weakening of the group's consolidated financial strength will undermine TFHC's and TIB's ratings. On the other hand, Fitch may consider equalising TFHC's and TIB's ratings if TFHC significantly reduces its leverage.

The ratings of TSS reflect support from TFHC via TIB given TSS's status as an integral part of the holding company. TSS's IDRs and National ratings are notched down one level below TIB's to reflect Fitch's view TIB may not have sufficient resources to support TSS in a stress scenario. Any rating action on TFHC and TIB could trigger a similar move on TSS. A significant reduction in TSS's strategic importance to the group could also trigger a rating action on TSS.

The liberalisation of cross-border banking policies between Taiwan and China in September 2011 led to an increase in TIB's exposure to the Chinese banks. Nonetheless, Fitch is of the view that the impact of this exposure on the bank's risk profile should remain moderate in the near- to medium- term given the conservative regulatory environment in Taiwan. Fitch expects TIB's loan growth to slow in H212-2013 following a strong increase in the preceding 18 months. Risk associated with the rapid loan growth is largely mitigated by the generally satisfactory credit quality of new loans and their short tenor.

Concentration on the property market and exposure to certain financially weak technology companies (3% of TIB's total credit as of end-June 2012) may expose the bank to asset quality deterioration. Nonetheless, a marked erosion of capital is unlikely considering TIB's improved underwriting practices, low proportion of high-risk mortgages and limited exposure to financially weak technology companies. At end-June 2012, TIB had limited non-performing loans and accumulated reasonably strong loan loss reserves at 1.06% of total loans.

TFHC's cash and highly liquid assets are more than sufficient to cover its standalone short-term liabilities, interest and preferred shares dividend obligations, as well as maturing debt obligation in 2012. Moreover, TIB's liquidity profile improved moderately between 2008 and H112. This is evident in a rising share of retail demand deposits, albeit not as strong as that of leading commercial banks in Taiwan. TSS mostly funds its operations with its own capital.

TFHC's asset sales and improved earnings have helped improve its financial flexibility, with reduced double leverage (end-June 2012: 120% based on Fitch's eligible capital calculations versus end-June 2009: 158%) and lower debt obligations (end-2012: TWD22bn versus end-2009: 55.7bn). This will help TFHC retain group earnings and thus improve its ability to support subsidiaries' capital needs. At end-June 2012, TFHC had a statutory sum-of-parts capital adequacy ratio of 132% against the regulatory minimum of 100%, reflecting adequate capitalisation among its subsidiaries.

TFHC's subordinated bonds are rated three notches below the issuer's National Long-Term rating, to reflect the bonds' going-concern loss-absorption mechanism. TIB's subordinated bonds are rated one notch below the issuer's National Long-Term rating, to reflect their subordinated status and the absence of going-concern loss-absorption feature. These notching practices are in accordance with Fitch's criteria on rating bank regulatory capital and similar securities. Any rating action on TFHC and TIB could trigger a similar move on their debt ratings.

TFHC is a bank-centric financial holding company with two bank subsidiaries - TIB and Chang Hwa Bank ('BBB+'/Stable, 22.55% owned) - and was the fifth-largest of 15 domestic financial holding companies by consolidated assets. TIB is the 14th largest bank in Taiwan by assets, with a market share of 3% in deposits. TSS is a small securities company in Taiwan.

The detailed list of rating actions is as follows: Taishin Financial Holdings Company (TFHC):

- Long-Term IDR affirmed at 'BBB'; Outlook Stable - Short-Term IDR affirmed at 'F3'

- National Long-Term rating affirmed at 'A+(twn)'; Outlook Stable

- National Short-Term rating affirmed at 'F1(twn)' - Viability Rating affirmed at 'bbb' - Support Rating affirmed at '5'; withdrawn - Subordinated debt rating affirmed at 'BBB+(twn)' Taishin International Bank (TIB): - Long-Term IDR affirmed at 'BBB+'; Outlook Stable - Short-Term IDR affirmed at 'F2'

- National Long-Term rating affirmed at 'AA-(twn)'; Outlook Stable

- National Short-Term rating affirmed at 'F1+(twn)' - Viability Rating affirmed at 'bbb+' - Support Rating affirmed at '3 - Support Rating Floor affirmed at 'BB+' - Subordinated debt rating assigned at 'A+(twn)' Taishin Securities Co., Ltd (TSS): - Long-Term IDR affirmed at 'BBB'; Outlook Stable - Short-Term IDR affirmed at 'F3'

- National Long-Term rating affirmed at 'A+(twn)'; Outlook Stable

- National Short-Term rating affirmed at 'F1(twn)'

Keywords: MARKETS RATINGS TAISHINGROUP