RPT-Fitch Maintains Ratings of CTBC Group on Rating Watch Negative

Fri May 9, 2014 6:24am EDT

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May 9 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has maintained the Rating Watch Negative (RWN) on most of the ratings on Taiwan-based CTBC Financial Holding Co., Ltd. (CTBC Holding) and its subsidiaries, including CTBC Bank Co., Ltd. (CTBC Bank), CTBC Life Insurance Co., Ltd. (CTBC Life) and CTBC Securities Co., Ltd. (CTBC Securities). A full list of rating actions is provided at the end of this commentary.

Fitch maintained the RWN on the ratings because the planned acquisition of The Tokyo Star Bank, Ltd. (Tokyo Star Bank) by CTBC Bank remains subject to regulatory approvals and there have been no material changes in CTBC Bank's performance. Meanwhile, CTBC Holding's proposed acquisition of Taiwan Life Insurance Co., Ltd. (Taiwan Life) has met with resistance from Taiwan Life's major shareholder and a conclusion of the transaction is highly uncertain at this point.

KEY RATING DRIVERS - IDRs, VR, IFS RATING, NATIONAL RATINGS and DEBT RATINGS The RWN continues to reflect Fitch's view that CTBC Bank's core capitalisation will weaken if the Tokyo Star Bank acquisition is completed. The Japanese bank's assets represent 26% of CTBC Bank's consolidated assets on a pro forma basis. Meanwhile, Tokyo Star Bank's low recurring earnings and execution risk in integrating the cross-border acquisition will likely hurt CTBC Bank's consolidated earnings quality.

CTBC Bank's Issuer Default Ratings (IDRs), Viability Rating (VR) and National Ratings, the anchor ratings for companies in the CTBC group, have to-date reflected its strong and stable domestic banking franchise and high quality of earnings, risk management and liquidity. They also factor in its low capitalisation compared with peers in the Asia-Pacific rated in the 'A' category.

CTBC Holding's ratings are aligned with those of CTBC Bank, based on the high level of integration between the two and the modest leverage and good standalone liquidity at the parent. CTBC Holding's planned acquisition of 100% of Taiwan Life has no material impact on the group's credit strength given the life insurer's moderate asset size (TWD450bn at end-2013, 12.3% of CTBC Holding's consolidated assets, including Tokyo Star Bank and Manulife's Taiwanese operations on a pro forma basis).

The ratings of CTBC Securities are aligned with CTBC Holding's, reflecting its status as a core subsidiary of the group, the obligatory support from the holding parent under Taiwan's Financial Holding Company Act and the inseparability of its risk profile from that of the group. CTBC Life's Insurer Financial Strength (IFS) rating take into account the high possibility of capital/liquidity support from CTBC Holding if needed. CTBC Holding's determination to penetrate the life insurance market underpins its strong willingness to provide financial support to its life insurance operations. CTBC Holding's and CTBC Bank's debt ratings are also maintained on RWN because they are notched from the companies' Long-Term IDRs and National Long-Term Ratings.

RATING SENSITIVITIES - IDRs, VR, IFS RATING, NATIONAL RATINGS and DEBT RATINGS The acquisition of Tokyo Star Bank is scheduled to be completed in June 2014, subject to regulatory approvals. Completion of the transaction is likely to lead to a downgrade of the group's IDRs, VRs, IFS Rating and National Ratings by one notch to reflect a weaker credit profile. Any other acquisitions that lead to a meaningful deterioration in the CTBC group's consolidated earnings and asset quality as well as capital buffer will further pressure the group's ratings. Any rating action on CTBC Holding and CTBC Bank will trigger a similar move on their debt ratings.

RATING DRIVERS AND SENSITIVITIES - SUPPORT RATING AND SUPPORT RATING FLOOR

CTBC Bank's Support Rating (SR) and Support Rating Floor (SRF) are affirmed at '3' and 'BB+', respectively, reflecting the bank's moderate systemic importance and moderate probability of state support, if needed. 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 list of rating actions is as follows:

CTBC Financial Holding Co., Ltd.:

- Long-Term IDR of 'A' maintained on RWN

- Short-Term IDR of 'F1' maintained on RWN

- National Long-Term Rating of 'AA+(twn)' maintained on RWN

- National Short-Term Rating of 'F1+(twn)' maintained on RWN

- Viability Rating of 'a' maintained on RWN

- Subordinated debt rating of 'A+(twn)' maintained on RWN

CTBC Bank Co., Ltd.:

- Long-Term Foreign Currency IDR of 'A' maintained on RWN

- Short-Term Foreign Currency IDR of 'F1' maintained on RWN

- National Long-Term Rating of 'AA+(twn)' maintained on RWN

- National Short-Term Rating of 'F1+(twn)' maintained on RWN

- Viability Rating of 'a' maintained on RWN

- Support Rating affirmed at '3'

- Support Rating Floor affirmed at 'BB+'

- Senior unsecured bonds' National Long-Term Rating of 'AA+(twn)' maintained on RWN

- Subordinated bonds' Long-Term Rating of 'A-' and National Long-Term Rating of 'AA(twn)' maintained on RWN

- Perpetual cumulative New Taiwan dollar subordinated bonds' Long-Term Rating of 'BBB' and National Long-Term Rating of 'A+(twn)' maintained on RWN

- Perpetual cumulative US dollar subordinated bonds' Long-Term Rating of 'BBB' maintained on RWN

CTBC Life Insurance Co., Ltd.:

- Insurer Financial Strength (IFS) Rating of 'A' maintained on RWN

- National IFS Rating of 'AA+(twn)' maintained on RWN

CTBC Securities Co., Ltd.:

- Long-Term IDR of 'A' maintained on RWN

- Short-Term IDR of 'F1' maintained on RWN

- National Long-Term Rating of 'AA+(twn)' maintained on RWN

- National Short-Term Rating of 'F1+(twn)' maintained on RWN

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