Fitch Affirms 6 Taiwan Bills Finance Companies

Fri Aug 1, 2014 2:22am EDT

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(The following statement was released by the rating agency) TAIPEI, August 01 (Fitch) Fitch Ratings has affirmed six Taiwanese bills finance companies (BFCs): International Bills Finance Corporation (International BFC), China Bills Finance Corporation (China BFC), Grand Bills Finance Corporation (Grand BFC), Taching Bills Finance Corporation (Taching BFC), Dah Chung Bills Finance Corporation (Dah Chung BFC), and Taiwan Finance Corporation (Taiwan Finance Corp). At the same time, Fitch has affirmed the ratings of Waterland Financial Holdings (Waterland Financial) and Waterland Securities Corporation (Waterland Securities), which are linked to the ratings of International BFC, the principal operating subsidiary of the group. The Outlooks are all Stable. A full list of rating actions is provided at the end of this commentary. KEY RATING DRIVERS - IDRs, National Ratings and Viability Ratings (VR) The IDRs and National Ratings of International BFC, China BFC, Grand BFC, Taching BFC and Dah Chung BFC are driven by their standalone credit profiles, which are reflected in their VRs. Taiwan Finance Corp's IDRs reflect the potential for institutional support from its largest shareholders, which is reflected in its Support Rating. Their VRs - mostly at 'bbb' and 'bbb-' - are underpinned by the ample liquidity in Taiwan, which mitigates the risk associated with the BFCs' reliance on wholesale funding, the BFCs' ability to maintain adequate capitalisation and their sufficient underwriting and asset quality. The ratings also reflect their shared weaknesses, including limited business scope, susceptibility to external shocks due to their relatively small balance sheets and concentrated risk exposures. Fitch expects the rated BFCs to comfortably navigate a tighter liquidity environment because they are able to access the repurchase (repo) market due to their high credit quality fixed-income holdings and to quickly wind down their short-dated commercial paper guarantee book under a stressed market. The BFCs restrained market risk appetites have reduced the probability of significant losses from a possible rate reversal that could result in severe capital erosion. In Fitch's view, the smaller-sized firms (Grand BFC, Taching BFC, Dah Chung BFC and Taiwan Finance Corp), which are less diversified in their borrowers and bond repo counterparties, face higher concentration risk than International BFC and China BFC. The concentration risk, their visibly smaller market presence and smaller loss absorption capacity resulted in lower ratings for these smaller firms. However, their focus on creditworthy corporates and high-quality collateral against repo agreements help to mitigate potential risks. China BFC and International BFC have the highest ratings of 'BBB' among Fitch-rated peers. They are more significant to the Taiwanese money market because of their consistently strong market presence in guarantee underwriting and market-making. RATING SENSITIVITIES - IDRs, National Ratings and VRs Dah Chung BFC's expanded interest rate exposure is a potential credit negative because of capital erosion should there be a rise in interest rates. The agency expects Dah Chung BFC to maintain its capital profile commensurate with its risk-taking, given its self-imposed loss limit and measured guarantee growth. Any deterioration in its capital buffer resulting from excessive increases in investments would lead to negative rating action. Grand BFC reported high credit growth in 2013, the majority of which was at the higher end of the credit spectrum or backed by strong collateral. Further aggressive growth leading to weakened capitalisation or asset quality would pressure its ratings. Taiwan Finance Corp reported the strongest growth in guarantees among peers in 2012-2014 as it rebuilt its guarantee portfolio after a sharp reduction during 2007-2009 due to a business re-orientation. The growth focused on borrowers with sound creditworthiness and was under close oversight by its bank shareholders and hence the associated risk is manageable. The IDRs and National Ratings of International BFC, China BFC, Grand BFC, Taching BFC and Dah Chung BFC are sensitive to same factors that could change their respective VRs. A change in Fitch's assessment of the ability or propensity of Taiwan Finance Corp's largest shareholders to provide support is likely to result in a change in its IDRs and National Ratings. The rated entities' VRs have limited upside due to the sector-wide structural limitations, such as their wholesale funding nature, limited business scope and vulnerability to interest rate changes. Negative rating action may result from any compromises in underwriting quality, weakened capital strength arising from aggressive growth, or unexpected market disruptions resulting in liquidity stress. KEY RATING DRIVERS AND SENSITIVITIES - SR and SRF International BFC's and China BFC's SRs and SRFs reflect a limited probability of government support, if needed. SRs and SRFs for Grand BFC, Taching BFC and Dah Chung BFC reflect Fitch's view that state support cannot be relied upon, due to their low systemic importance. Taiwan Finance Corp's SR is driven by expected support from its bank shareholders, including Mega International Commercial Bank, Cathay United Bank, and International BFC. The SRs and SRFs of International BFC, China BFC, Grand BFC, Taching BFC and Dah Chung BFC are sensitive to changes in assumptions around the propensity of the government to provide timely support. Taiwan Finance Corp's SR may be downgraded if the willingness or ability of its top shareholders to extend support were deemed to be reduced. KEY RATING DRIVERS AND SENSITIVITIES - Waterland Financial and Waterland Securities The IDRs and National Ratings of Waterland Financial and Waterland Securities are aligned with those of International BFC, the principal operating subsidiary in the group. Waterland Securities' ratings also reflect the obligatory support from its parent Waterland Financial under Taiwan's Financial Holding Company Act. Waterland Financial and Waterland Securities' standalone financial performances remain healthy, including the maintenance of adequate liquidity and sound financial flexibility. Waterland Financial's ratings are driven by the financial strength of its principal operating subsidiary, International BFC. Any weakening of IBF's credit profile, and/or Waterland Financial's standalone liquidity and leverage could pressure its ratings. Waterland Securities' ratings will move in tandem with the ratings of its parent, Waterland Financial. FULL LIST OF RATING ACTIONS International BFC: Long-Term Issuer Default Rating (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 '4' Support Rating Floor affirmed at 'B+' Waterland Financial: 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' Waterland Securities: 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)' China BFC: 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 '4' Support Rating Floor affirmed at B+' Dah Chung BFC: 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' Support Rating Floor affirmed at 'No Floor' Taching BFC: 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' Support Rating Floor affirmed at 'No Floor' Grand BFC: 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' Support Rating Floor affirmed at 'No Floor' Taiwan Finance Corp: 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 'bb' Support Rating affirmed at '2'. Contacts: Primary Analyst Jack Chiu (International BFC, Waterland Financial, Waterland Securities, China BFC, Dah Chung BFC and Taching BFC) Associate Director +886 2 8175 7606 Fitch Ratings Limited, Taiwan branch Suite 1306, 13F, 205, Tun Hwa N. Rd., Taipei Clark Wu (Grand BFC and Taiwan Finance Corp) Associate Director +886 2 8175 7602 Secondary Analyst Cherry Huang (China BFC, Taching BFC, Grand BFC and Taiwan Finance Corp) Director +886 2 8175 7603 Sophia Chen (International BFC, Waterland Financial, Waterland Securities and Dah Chung BFC) Director +886 2 8175 7604 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, 'National Scale Ratings Criteria', dated 30 October 2013, and 'Finance and Leasing Companies Criteria', dated 11 December 2012, are available at www.fitchratings.com. Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria here National Scale Ratings Criteria here Finance and Leasing Companies 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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