Fitch Affirms Taiwan's Chang Hwa Bank at 'BBB+'; Outlook Stable

Tue Mar 25, 2014 10:46pm EDT

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(The following statement was released by the rating agency) TAIPEI/SYDNEY, March 25 (Fitch) Fitch Ratings has affirmed Taiwan-based Chang Hwa Bank's (CHB) ratings, including its Long-Term Issuer Default Rating (IDR) at 'BBB+'. The Outlook is Stable. A full list of rating actions is at the end of this rating action commentary. KEY RATING DRIVERS - IDRS, NATIONAL RATINGS, SUPPORT RATING AND SUPPORT RATING FLOOR CHB's IDRs and National ratings are driven by its Support Rating (SR) and Support Rating Floor (SRF), which reflect the high probability of support from the state given its importance. This is evident in the state's long-term ownership (currently 18.6%) of the bank, its legacy as a leading franchise (in terms of branch network), as well as its place among the banks with the 10 largest market shares in deposits and loans. The Stable Outlook reflects Fitch's expectation of no diminishing of support from the state in terms of ability or propensity. RATING SENSITIVITIES - IDRS, NATIONAL RATINGS, SUPPORT RATING AND SUPPORT RATING FLOOR The bank's IDRs, National ratings, SR and SRF are sensitive to any change in assumptions around the ability or propensity of the state to provide timely support to the bank. This would most likely be manifested in a change to Taiwan's sovereign rating (A+/Stable) or a move towards full privatisation of the bank. KEY RATING DRIVERS - VIABILITY RATING The bank's Viability Rating (VR) primarily reflects its strong and long established franchise, particularly in the SME segment, but also considers its growing capital position despite modest profitability. Like many other larger Taiwanese banks, CHB also enjoys a solid funding and liquidity profile. Although the concentration of loans with the bank's 10 largest borrowers is relatively high compared with its peers, at 16% of total loans, it is on a declining trend and the loans are mostly quality secured exposures or extended to state-owned entities. RATING SENSITIVITIES - VIABILITY RATING Any unexpected deterioration of large credits leading to impairment of capital or elevation in risk-taking, without enhancement of its capitalisation, could trigger a VR downgrade. A VR upgrade could occur if CHB can sustain higher profitability in line with higher-rated peers while maintaining sound asset quality and without increasing risk appetite. This would enhance the prospects of even stronger internal capital generation. KEY RATING DRIVERS - SUBORDINATED DEBT CHB's subordinated debt is rated one notch below its National Long-Term rating, reflecting its subordinated status and the absence of any going-concern loss-absorption mechanism (such as coupon deferral under specified conditions). It has thus been affirmed due to the affirmation of CHB's National Long-Term rating. RATING SENSITIVITIES - SUBORDINATED DEBT Any rating action on CHB's National Long-Term rating is likely to trigger a similar move in its debt ratings. The rating actions are as follows: CHB: 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 '2' Support Rating Floor affirmed at 'BBB+' Subordinated bonds affirmed at 'A+(twn)' Contact: Primary Analyst Clark Wu Associate Director +886 2 8175 7602 Fitch Ratings Limited, Taiwan Branch Suite 1306, 13F, Tun Hwa N. Rd., Taipei Secondary Analyst Jenifer Chou, CFA, FRM Associate Director +886 2 81757605 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. Additional information is available on www.fitchratings.com Applicable criteria, 'Global Financial Institutions Rating Criteria', dated 1 January 2014, 'National Scale Ratings Criteria', dated 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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