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Fitch Maintains Cosmos Bank, Taiwan on Rating Watch Positive
August 13, 2014 / 6:27 AM / in 3 years

Fitch Maintains Cosmos Bank, Taiwan on Rating Watch Positive

(The following statement was released by the rating agency) TAIPEI/SYDNEY, August 13 (Fitch) Fitch Ratings has maintained its ratings on Cosmos Bank, Taiwan (Cosmos) on Rating Watch Positive (RWP). A full list of rating actions is at the end of this rating action commentary. Fitch previously placed Cosmos' ratings on RWP following the announcement of its acquisition by China Development Financial Holding Corporation (CDFHC) in February 2014. The agency expects to resolve the Rating Watch after the two parties complete a share swap that will result in Cosmos becoming a 100% subsidiary of CDFHC. KEY RATING DRIVERS - NATIONAL RATINGS The RWP continues to reflect Fitch's view that Cosmos' ratings will benefit from support from CDFHC once the share swap is completed. The agency believes CDFHC, whose two principal subsidiaries are KGI Securities (KGI) and China Development Industrial Bank (CDIB), has a stronger credit profile than Cosmos, anchored by its strong position in the brokerage and principal investment market in Taiwan, a track record of healthy earnings generation and a direct investment portfolio fully funded by its own equity. CDFHC, on a stand-alone basis, has adequate capitalisation and is moderately leveraged. CDFHC is highly likely to support Cosmos if needed because Cosmos forms a core part of CDFHC's strategy to establish a diversified universal banking group. Cosmos' stand-alone credit profile is likely to strengthen with the integration of CDIB's corporate banking and global financial markets business. The integration will result in an enhanced funding profile for Cosmos in terms of diversity, stability and costs, an improved franchise with larger scale and more complete product/service platform, access to group resources for cross-selling, and a more diversified credit exposure with smaller proportion of higher-risk unsecured personal lending. RATING SENSITIVITIES - NATIONAL RATINGS Cosmos' new ratings would be determined based on Fitch's assessment of the credit profile of CDFHC, including that of its subsidiaries KGI and CDIB, the risks that Cosmos will bring to the group profile and Cosmos' status and strategic importance within the group. This is based on Fitch's view that Cosmos' stand-alone credit profile may remain weaker than that of CDFHC in the coming two years because of a rapid asset expansion plan that could weigh on its asset quality if it is not well-managed. The rating actions are as follows: Cosmos: National Long-Term Rating of 'BBB+(twn)'; RWP maintained National Short-Term Rating of 'F2(twn)'; RWP maintained Contacts: Primary Analysts Jenifer Chou, CFA, FRM Associate Director +886 2 8175 7605 Fitch Ratings Limited, Taiwan Branch Suite 1306, 13F, 205, Tun Hwa N. Rd., Taipei Secondary Analysts Sophia Chen, CFA, CPA 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 "Rating FI Subsidiaries and Holding Companies", dated 10 August 2012, "Global Financial Institutions Rating Criteria", dated 31 January 2014, "Securities Firms Criteria", dated 31 January 2014 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 Securities Firms 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 FREE WEB SITE AT 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. Fitch Australia Pty Ltd holds an Australian financial services licence (AFS licence no. 337123) which authorises it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001.

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