RPT-Fitch Affirms Mega International Commercial Bank at 'A-'/Stable

Tue Jan 21, 2014 2:29am EST

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Jan 21 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has affirmed Taiwan-based Mega International Commercial Bank Company Limiteda€™s (Mega ICBC) Long-Term Issuer Default Rating (IDR) at a€˜A-a€™ and its National Long-Term Rating at 'AA(twn)'. The Outlook is Stable. A full rating breakdown is provided at the end of the commentary.

KEY RATING DRIVERS a€“ IDRs, VR and NATIONAL RATINGS

Mega ICBCa€™s Viability Rating (VR) reflects the banka€™s strong domestic franchise in foreign exchange and trade finance, its ability to maintain comparably stable earnings through the cycle and healthy liquidity. The rating is constrained by Mega ICBCa€™s concentrated loan portfolio and moderate capital buffer compared with similarly rated regional peers. The banka€™s IDRs and National Ratings take into account the extremely high probability of government support, if needed, as reflected in its Support Rating (SR) of a€˜1a€™ and Support Rating Floor (SRF) of a€˜A-a€™.

Mega ICBCa€™s overall offshore exposures remained stable relative to its total assets but exposure to China increased rapidly in the past two years. Fitch expects Mega ICBC to be able to manage the rising impact of China-related exposures in the near- to medium term. This is because the exposure mainly relates to short-term trade financing, loans to Taiwanese companies operating in China that it already has established relationships with and the reasonable quality of its counterparties and investments in China. Nonetheless, with the continued regulatory liberalisation of banking policies between Taiwan and China, the China exposure is likely to have material impact on the banka€™s risk profile over the longer term.

In Fitcha€™s view, the notable increase in construction loans in the past three years and the existing exposures to some financially weak technology companies have the potential to hurt Mega ICBCa€™s overall asset quality because of a softening outlook for the property market and weak economic recovery.

Nevertheless, a marked erosion of capital is not likely given the banka€™s focus on leading property developersa€™ projects in prime metropolitan areas, generally conservative loan-to-value ratios at origination and enhanced loan loss reserves.

RATING SENSITIVITIES a€“ IDRs, VR and NATIONAL RATINGS

Any meaningful increase in risk profile due to growth in offshore assets and/or property sector loans, which are of higher risk, would pressure Mega ICBCa€™s VR. A downgrade of IDRs and National Ratings would be unlikely, given the banka€™s Support Rating of a€˜1a€™ and Support Rating Floor of a€˜A-a€™. The prospect of positive rating action for the VR is limited considering the banka€™s already high rating and the very competitive domestic banking market.

RATING DRIVERS AND SENSITIVITIES - SUPPORT RATING AND SUPPORT RATING FLOOR

Mega ICBCa€™s SR and SRF are affirmed at a€˜1a€™ and a€˜A-a€™, respectively, reflecting the extremely high probability of state support for the bank if necessary, because it is the only bank to provide US dollar settlement services in Taiwan, it has a significant 6% market share of deposits and it is subject to significant government influence. The SR and SRF are sensitive to any change in assumptions around the propensity or ability of the Taiwan government to provide timely support to the bank. This would most likely be manifested in a change to Taiwan's sovereign rating (A+/Stable).

The detailed list of rating actions is as follows:

- Long-Term IDR affirmed at 'A-'; 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 'a-'

- Support Rating affirmed at '1'

- Support Rating Floor affirmed at 'A-'

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