(The following was released by the rating agency)
TAIPEI/HONG KONG/SINGAPORE, October 09 (Fitch) Fitch Ratingshas 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 At the same time, Fitchhas withdrawn the Support Rating of TFHC as it is no longerconsidered by Fitch to be relevant to the agency's ratingcoverage. A full rating breakdown can be found at the end ofthis commentary.
TIB's Issuer Default Ratings, National Ratings and ViabilityRating reflect its well-established domestic consumer bankingfranchise, 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 remainstable into 2013, underpinned by its focus on prime and superprime segments and sound asset quality. Fitch may considernegative rating action if TIB continues to pursue rapid lendinggrowth and further increases high-risk exposures that could putpressure on core capitalisation. TIB's Support Rating of '3' andSupport Rating Floor of 'BB+' reflect Fitch's expectation ofmoderate state support in case of need, given the bank'smoderate systemic importance in Taiwan.
TFHC's ratings are mostly driven by the credit profile ofTIB. Any changes in TIB's ratings will most likely have asimilar effect on TFHC. Based on Fitch's methodology for ratingbank holding companies, TFHC's IDRs and National ratings arenotched down one level below TIB's to reflect the former'sreduced but still high leverage. Meanwhile, any aggressiveinvestments or acquisitions by TFHC leading to significantweakening of the group's consolidated financial strength willundermine TFHC's and TIB's ratings. On the other hand, Fitch mayconsider equalising TFHC's and TIB's ratings if TFHCsignificantly reduces its leverage.
The ratings of TSS reflect support from TFHC via TIB givenTSS's status as an integral part of the holding company. TSS'sIDRs and National ratings are notched down one level below TIB'sto reflect Fitch's view TIB may not have sufficient resources tosupport TSS in a stress scenario. Any rating action on TFHC andTIB could trigger a similar move on TSS. A significant reductionin TSS's strategic importance to the group could also trigger arating action on TSS.
The liberalisation of cross-border banking policies betweenTaiwan and China in September 2011 led to an increase in TIB'sexposure to the Chinese banks. Nonetheless, Fitch is of the viewthat the impact of this exposure on the bank's risk profileshould remain moderate in the near- to medium- term given theconservative regulatory environment in Taiwan. Fitch expectsTIB's loan growth to slow in H212-2013 following a strongincrease in the preceding 18 months. Risk associated with therapid loan growth is largely mitigated by the generallysatisfactory credit quality of new loans and their short tenor.
Concentration on the property market and exposure to certainfinancially weak technology companies (3% of TIB's total creditas of end-June 2012) may expose the bank to asset qualitydeterioration. Nonetheless, a marked erosion of capital isunlikely considering TIB's improved underwriting practices, lowproportion of high-risk mortgages and limited exposure tofinancially weak technology companies. At end-June 2012, TIB hadlimited non-performing loans and accumulated reasonably strongloan loss reserves at 1.06% of total loans.
TFHC's cash and highly liquid assets are more thansufficient to cover its standalone short-term liabilities,interest and preferred shares dividend obligations, as well asmaturing debt obligation in 2012. Moreover, TIB's liquidityprofile improved moderately between 2008 and H112. This isevident in a rising share of retail demand deposits, albeit notas strong as that of leading commercial banks in Taiwan. TSSmostly funds its operations with its own capital.
TFHC's asset sales and improved earnings have helped improveits financial flexibility, with reduced double leverage(end-June 2012: 120% based on Fitch's eligible capitalcalculations versus end-June 2009: 158%) and lower debtobligations (end-2012: TWD22bn versus end-2009: 55.7bn). Thiswill help TFHC retain group earnings and thus improve itsability to support subsidiaries' capital needs. At end-June2012, TFHC had a statutory sum-of-parts capital adequacy ratioof 132% against the regulatory minimum of 100%, reflectingadequate capitalisation among its subsidiaries.
TFHC's subordinated bonds are rated three notches below theissuer's National Long-Term rating, to reflect the bonds'going-concern loss-absorption mechanism. TIB's subordinatedbonds are rated one notch below the issuer's National Long-Termrating, to reflect their subordinated status and the absence ofgoing-concern loss-absorption feature. These notching practicesare in accordance with Fitch's criteria on rating bankregulatory capital and similar securities. Any rating action onTFHC and TIB could trigger a similar move on their debt ratings.
TFHC is a bank-centric financial holding company with twobank subsidiaries - TIB and Chang Hwa Bank ('BBB+'/Stable,22.55% owned) - and was the fifth-largest of 15 domesticfinancial holding companies by consolidated assets. TIB is the14th 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: TaishinFinancial 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)'; OutlookStable
- 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)'; OutlookStable
- 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)'; OutlookStable
- National Short-Term rating affirmed at 'F1(twn)'
Keywords: MARKETS RATINGS TAISHINGROUP