Fitch Maintains Ratings of CTBC Group on Rating Watch Negative

Thu Jul 31, 2014 10:52pm EDT

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(The following statement was released by the rating agency) TAIPEI/HONG KONG, July 31 (Fitch) 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 expects to resolve the Rating Watch before end-October 2014 when Fitch receives greater clarity on CTBC Bank's consolidated financials after the completion of the Tokyo Star Bank acquisition in June 2014. The two banks follow different financial reporting standards - Tokyo Star Bank follows Japanese GAAP, while CTBC Bank uses IFRS. 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 probably weaken following the Tokyo Star Bank acquisition. The Japanese bank's assets represent 25% of CTBC Bank's consolidated assets on a pro forma basis. Meanwhile, Tokyo Star Bank's low recurring earnings and the execution risk in integrating the cross-border acquisition will likely hurt the quality of CTBC Bank's consolidated earnings. 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. 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) ratings 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. The ratings on the debt of CTBC Holding and CTBC Bank 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 Fitch will likely take negative rating actions, albeit limited to one-notch downgrades, on the group's IDRs, VRs, IFS Ratings and National Ratings if the consolidated financials confirm Fitch's view of a weakening 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 - Perpetual non-cumulative New Taiwan dollar subordinated bonds' (Basel III additional tier 1 capital) National Long-Term Rating of 'A(twn)' maintained on RWN - Subordinated bonds' (Basel III tier 2 capital) National Long-Term Rating of 'AA-(twn)' 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 Contacts: Primary Analysts Sophia Chen, CFA, CPA (CTBC Holding, CTBC Bank and CTBC Securities) Director +886 2 8175 7604 Fitch Ratings Limited, Taiwan Branch Suite 1306, 13F, 205, Tun Hwa N. Rd., Taipei Joyce Huang, CFA (CTBC Life) Director +852 2263 9595 Fitch Ratings (Hong Kong) Limited 2801, Tower Two, Lippo Centre 89 Queensway, Hong Kong Secondary Analysts Jonathan Lee (CTBC Holding, CTBC Bank and CTBC Securities) Senior Director +886 2 8175 7601 Jeffrey Liew (CTBC Life) Senior Director +852 2263 9939 Committee Chairperson (CTBC Holding, CTBC Bank and CTBC Securities) Mark Young Managing Director +65 6796 7229 Committee Chairperson (CTBC Life) Harish Gohil Managing Director +44 20 3530 1257 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 "Rating FI Subsidiaries and Holding Companies", dated 10 August 2012, "Global Financial Institutions Rating Criteria", dated 31 January 2014, "Assessing and Rating Bank Subordinated and Hybrid Securities", dated 31 January 2014, "Securities Firms Criteria", dated 31 January 2014, "Insurance Rating Methodology", dated 13 November 2013 and "National Scale Ratings Criteria", dated 30 October 2013, are available at www.fitchratings.com. Applicable Criteria and Related Research: Rating FI Subsidiaries and Holding Companies here Global Financial Institutions Rating Criteria here Assessing and Rating Bank Subordinated and Hybrid Securities Criteria here Securities Firms Criteria here Insurance Rating Methodology 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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