TEXT-Fitch Affirms Taiwan's SinoPac Financial Group

Tue Oct 2, 2012 10:24pm EDT

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(The following was released by the rating agency)

TAIPEI/SYDNEY, October 03 (Fitch) Fitch Ratings has affirmed Taiwan-based Bank SinoPac's (BSP) Issuer Default Rating (IDR) at 'BBB' and its parent SinoPac Financial Holdings' (SPH) IDR at 'BBB-', both with Stable Outlook. A full rating breakdown is provided at the end of this comment.

The affirmation reflects the stable banking franchise of SinoPac Group (SPH and its wholly-owned subsidiaries including BSP), improved earnings at the banking subsidiary and continuing modest leverage at the holding parent. They also factor in the group's comparably moderate internal capital generation in Asia Pacific and volatile earnings at the securities subsidiary, SinoPac Securities (SPS). The Stable Outlook underlines Fitch's expectation that the group will maintain its stable credit profile and contain credit losses through the global economic downturn.

Significant and sustainable improvement in risk-adjusted core earnings and strengthening of capitalisation may benefit BSP's ratings. On the other hand, BSP's concentrated property-related exposures may undermine ratings if the property market reverses markedly. Significant asset quality deterioration and weakening capitalisation arising from aggressive growth in corporate finance, particularly in association with China, may also lead to a rating downgrade. The ratings of SPH are mostly driven by the credit profile of its principal operating subsidiary, BSP.

BSP regained its earnings momentum and posted annualised return of equity of 11% for H112 versus 3.6% for 2011, due to easing credit costs amid a benign credit cycle and clean-up of problematic commercial real estate exposures at its U.S. subsidiary, Far Eastern National Bank. The bank's asset quality accordingly improved; its 90-day non-performing loan (NPL) ratio was 0.38% at end-H112, down from 0.47% at end 2011. However, Fitch expects earnings momentum for BSP to moderate in 2012-2013 as a weak economic outlook weighs on the bank's asset quality.

BSP's capitalisation remains moderate by regional comparison but is, in Fitch's view, appropriate for its risk profile. This, coupled with its mildly improved provisioning, should assist the bank in weathering moderate external shocks. BSP's liquidity profile should remain stable given its resilient deposit franchise and adequate liquidity management.

Founded in 2002, SPH is a medium-sized bank holding company with consolidated assets of TWD1.32trn at end-H112. It provides diversified financial services through its two major subsidiaries, BSP and SPS, and five small subsidiaries in other financial sectors. BSP has 129 branches and commanded a 3.57% market share in deposits at end-H112. Taiwan-based conglomerate, Yong Foong Yu Group and its majority owner, Show Chung Ho, through his investment vehicles, are the group's largest shareholders and control six out of 12 board seats.

A Credit Update on SPH and a Credit Analysis on BSP will be published shortly on www.fitchratings.com.

The rating actions are as follows:

BSP:

Long-Term IDR: affirmed at 'BBB'; Outlook Stable

Short-Term IDR: affirmed at 'F2'

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 '3'

Support Rating Floor: affirmed at 'BB+'

SPH:

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'

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