(The following was released by the rating agency)
TAIPEI/HONG KONG, August 21 (Fitch) Fitch Ratings has today affirmed Taiwan Finance Corporation’s (TFC) ratings, including its National Long-Term Rating at ‘A(twn)’ with Stable Outlook . A full rating breakdown is detailed below.
The affirmation takes into account of TFC’s steady credit profile, adequate capitalisation despite surging assets growth in recent years. The company’s Issuer Default Rating (IDR) reflects the expected support from its top shareholders who constitute 95% of shareholdings. These shareholders are financial institutions with substantially stronger financial strength and asset size than TFC. TFC’s IDR is notched from the weighted average of the shareholders’ ratings and assessed creditworthiness. The IDR could be upgraded if it is integrated into one of its larger bank shareholders, although it is unlikely to happen in the near future. TFC’s IDR could be downgraded if ratings of its top shareholding banks are downgraded, or if there are signs of reducing propensity of shareholder support.
Fitch believes TFC’s profitability will continue to remain weak in 2012 but expects the company to improve profitability gradually by expanding its business scale without overly stretching its capital. Fitch deems the company’s liquidity to be satisfactory given its access to liquidity support from its shareholding banks.
TFC’s Viability Rating (VR) is lower than most of its peers under Fitch’s coverage due to its small franchise and weak profitability. The company’s Tier-1 capital ratio decreased to 20.18% in H112 (end-2011: 23.63% and end-2010: 40.17%) as a result of rebuilding its business volume in commercial paper guarantee and investments. Fitch notes that the company will maintain its capital adequacy ratio above 15% in the near term. TFC recorded no growth between 2008 and 2010 when there were uncertainties of it being consolidated or downsized.
Its VR’s upside potential is limited given its rapid growth in assets and declining capitalisation. The VR could be revised downward if the company suffers credit quality deterioration in its guarantee book from the recent growth.
TFC is one of the smallest bills finance firms in Taiwan. Its largest shareholders are Mega International Commercial Bank Company Limited (‘A-'/Stable), International Bills Finance Corporation (‘BBB’/ Stable) and Cathay United Bank each with a 24.6% stake, followed by The Shanghai Commercial and Savings Bank and city government-controlled Bank of Kaohsiung with 11.5% and 10% stakes respectively.
The rating actions on TFC are as follows:
Long-Term Foreign-Currency Issuer Default Rating (IDR) affirmed at ‘BBB-'; Outlook Stable
Short-Term Foreign-Currency 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 ‘bb’; and
Support Rating affirmed at ‘2’.