September 20, 2017 / 9:07 AM / a year ago

Fitch Affirms Taishin Group's Ratings; Outlook Stable

(The following statement was released by the rating agency) TAIPEI, September 20 (Fitch) Fitch Ratings has affirmed the ratings of Taishin International Bank (TIB), its parent Taishin Financial Holding Co., Ltd. (TFHC) and sister company Taishin Securities Co., Ltd. (TSS). The Outlooks on all three entities are Stable. A full list of ratings is provided at the end of this commentary. KEY RATING DRIVERS IDRS, NATIONAL RATINGS AND VIABILITY RATINGS TIB's affirmation reflects an adequately sustained consumer banking franchise, backed by its well-established wealth management advisory platform, an expanded retail client base, collaborative cross-selling initiatives and a highly targeted customer acquisition and penetration plan. This is in spite of increasing competition in the retail banking space, especially in credit card and wealth management. We also see TIB's profitability improving moderately from a bottom in 2016, when it was hit by provisioning costs associated with the sale of target-redemption forwards (TRF). In 1H17, annualised return on assets increased to 0.8% from 0.7% in 2016, mainly due to a pick-up in fee income generation as well as notably reduced credit costs. We expect the trend to continue over 2017-2018 as the Taiwan economy is on track for a mild recovery while TIB has maintained stable asset quality over its growth in the last few years. Loan mix has remained similar; mortgage and home equity together make up about 45% of the total loan book, with a current loan-to-value ratio averaging at about 40%. Fitch expects TIB's capitalisation to improve in 2018, with common equity Tier 1 ratio reaching 9% and Tier 1 ratio at 10.5%, as per Basel III standards, plus a 200bp Pillar 2 buffer for overseas expansion required by the local regulator. We believe this will be achieved mostly through TIB's strong internal capital generation. TIB's Fitch Core Capital ratio was at 9.7% at end-1H17, based on Taiwan's higher capital charge for mortgages, and the agency estimates that it will rise to 10.0%-10.5% at end-2018. We believe TIB has a healthy liquidity profile, as it is mostly funded by customer deposits and would continue to benefit from the plentiful liquidity in Taiwan. The affirmation of TFHC is in line with the rating action on its wholly owned principal banking subsidiary - TIB. TFHC's Long-Term Issuer Default Rating (IDR) is one notch below that of TIB to reflect TFHC's high common equity double leverage ratio (142% at end-1H17). Fitch expects TFHC's use of leverage to remain at a high level in the near term. We see TFHC maintaining its appetite to sustain TIB's growth at above the sector's average as well as its ambition to pursue inorganic growth. We believe the group may diversify its business mix through expanding its securities business or adding an insurance line. Fitch also sees uncertainty over its stake in Chang Hwa Bank continuing to constrain the group's capital planning and strategy. The ratings and outlooks of TSS are aligned with its parent, TFHC, reflecting its status as a core subsidiary, the obligatory support from TFHC under Taiwan's Financial Holding Company Act and the parent's strong ability to provide support due to TSS's small size. SUPPORT RATING AND SUPPORT RATING FLOOR TIB's Support Rating and Support Rating Floor reflect a moderate probability of state support, if needed, given its moderate systemic importance with a deposit market share of about 3%. SUBORDINATED DEBT TIB's subordinated bonds are rated one notch below its National Long-Term Rating to reflect their subordinated status and the absence of the going-concern loss-absorption feature. TFHC's subordinated bonds are rated three notches below its National Long-Term Rating, reflecting the bonds' subordination status and going-concern loss-absorption features. The bonds' ratings have thus been affirmed due to the affirmation of TFHC and TIB. RATING SENSITIVITIES IDRS, NATIONAL RATINGS AND VIABILITY RATINGS TIB's IDRs, National Ratings and Viability Rating are sensitive to changes in Fitch's assessment of TIB's capital flexibility as well as ability to sustain its consumer banking franchise. Downward rating pressure would build if capitalisation fails to improve as the agency expects and if there is a noticeable deterioration in capital generation and profitability at TIB. Any changes in TIB's ratings will affect the ratings of TFHC and TSS to a similar extent. TFHC's ratings may be equalised to those of TIB if TFHC establishes a record of prudent leverage use by reducing its common equity double leverage ratio to consistently below 120%. SUPPORT RATING AND SUPPORT RATING FLOOR TIB's Support Rating and Support Rating Floor are sensitive to a change in Fitch's assumptions around the propensity or ability of the Taiwan government to provide timely support, if needed. SUBORDINATED DEBT Any rating action on TFHC and TIB could trigger a similar move on their debt ratings, as the subordinated debt ratings are broadly sensitive to the same considerations that might affect TFHC and TIB. The rating actions are as follows: Taishin International Bank 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 (Basel II Tier 2 capital) debt rating affirmed at 'A+(twn)' Taishin Financial Holding Co., Ltd. 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' Subordinated (Basel II deferrable lower Tier 2 capital) debt rating affirmed at 'BBB+(twn)' Taishin Securities Co., Ltd. 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)' Contact: Primary Analyst Jenifer Chou, CFA, FRM Director +886 2 8175 7605 Fitch Australia Pty Ltd, Taiwan Branch Suite 1306, 13F, 205, Tunhwa North. Rd., Taipei City Secondary Analyst Sophia Chen, CFA, CPA Director +886 2 8175 7604 Committee Chairperson Parson Singha Senior Director +66 2108 0151 Summary of Financial Statement Adjustments: The following assumptions were made in analysing the banks' Fitch Core Capital ratios; Taiwan's regulator uses the standardised approach and imposes higher risk weights on mortgage than regulators in most other developed markets. We have considered the potential effect of these higher risk weights on the banks' Fitch Core Capital ratios compared with international peers that use lower mortgage risk weights. Note to editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(twn)' for National ratings in Taiwan. Specific letter grades are not therefore internationally comparable. Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: Additional information is available on Applicable Criteria Global Bank Rating Criteria (pub. 25 Nov 2016) here Global Non-Bank Financial Institutions Rating Criteria (pub. 10 Mar 2017) here National Scale Ratings Criteria (pub. 07 Mar 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. 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