Fitch Affirms Taiwan's Shanghai Commercial and Savings Bank at 'A-'/Stable

Tue Jan 21, 2014 1:18am EST

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(The following statement was released by the rating agency) TAIPEI/HONG KONG/SINGAPORE, January 21 (Fitch) Fitch Ratings has affirmed Taiwan-based Shanghai Commercial and Savings Bank’s (SCSB) Long-Term Issuer Default Rating (IDR) at 'A-', National Long-Term Rating at 'AA(twn)' and Viability Rating (VR) at 'a-'. The Outlook is Stable. A rating breakdown is provided at the end of this commentary. The affirmation of SCSB’s VR and IDR reflect its adequate capitalisation, high reserve coverage, profitable Greater China franchise through its principal and 57.6%-owned subsidiary in H.K. - Shanghai Commercial Bank (SCB, A-/Stable) - and alliance with Bank of Shanghai, China, as well as the robust risk absorption ability of SCB. The ratings also consider the increasing pressure on its capital from growth and its modest franchise in the region. KEY RATING DRIVERS – IDRs, National Ratings and VRs The ratings capture the bank’s higher provisioning coverage than similarly rated peers and sufficient capitalisation, which will help provide a buffer against its moderately high exposure to SMEs and rising China-related risks in a downturn. The bank’s gross loan provision was at 1.38% as of end-1H13, higher than a peer average of 1%. SCSB’s consolidated pre-tax return on assets remained satisfactory at 0.65% (unannualised) in 1H13 and 1.28% in 2012, higher than the local peer average of 0.38% and 0.68%, respectively. Fitch expects the bank to maintain stable earnings on the back of strong operational efficiency, moderate provision risks and SCB’s earnings resilience. While the bank’s capitalisation remains sufficient relative to its risk profile, it has been under pressure as it extended more loans, and continued rapid growth may weigh on its credit profile. The consolidated Fitch Core Capital ratio declined to 12.8% at end-1H13 from 13.8% at end-2012, due to loan growth and a one-off IFRS revaluation adjustment. SCSB’s reported impaired loan ratios are higher than regional peers’, although it is likely due to the bank’s stricter classification and loans in this segment should be sufficiently covered by its loan-loss provisions. RATING SENSITIVITIES – IDRs, National Ratings and VRs The Stable Outlook underlines Fitch's expectation that SCSB will maintain its balance sheet strength while pursuing regional expansion. Rating downside is more likely than upside given the increasing pressure on capital as its loan book expands. A downgrade of SCB or weakening capitalisation and/or risk profile due to excessive growth may also put downward pressure on the ratings. KEY DRIVERS AND RATING SENSITIVITIES - Support Rating and Support Rating Floor SCSB’s Support Rating (SR) and Support Rating Floor (SRF) reflect its modest systemic importance, and a limited probability of support from the government, if needed. The SR and SRF are sensitive to any change in assumptions around the propensity or ability of 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). Founded in 1915, SCSB is a privately owned bank. The family of the bank's chairman, Hung-Ching Yung, is the bank’s largest shareholder and controls its board. SCSB’s share of domestic deposits was 2.43% at end-3Q13. It had an around 3%-5% market share in SME lending and import/export trade finance in Taiwan. A Credit Update on SCSB will shortly be available on www.fitchratings.com. A list of rating actions follows: - Long-Term IDR: affirmed at ‘A-’; Stable Outlook - Short-Term IDR: affirmed at ‘F1’ - National Long-Term rating: affirmed at ‘AA(twn)’; Stable Outlook - National Short-Term rating: affirmed at ‘F1+(twn)’ - Viability Rating: affirmed at ‘a-’ - Support Rating: affirmed at ‘4’ - Support Rating Floor: affirmed at ‘B+’ Contacts: Primary Analyst Cherry Huang, CFA, Director +886 2 8175 7603 Fitch Ratings Limited Suite 1306, 13F, 205, Tun Hwa N. Rd., Taipei Secondary Analyst Jack Chiu Associate Director +886 2 8175 7606 Committee Chairperson Tim Roche Senior Director +61 2 8256 0310 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. 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. Additional information is available at www.fitchratings.com. Applicable criteria, "Global Financial Institutions Rating Criteria", dated 15 August 2012; and “National Scale Ratings Criteria� 30 October 2013; are available at www.fitchratings.com Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria here National Scale Ratings Criteria here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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