TAIPEI/SEOUL/SINGAPORE, February 05 (Fitch) Fitch Ratings has affirmed Taiwan-based Mega International Commercial Bank Company Limited's (Mega ICBC) ratings, including its Long-Term Issuer Default Rating (IDR) at 'A-' with Stable Outlook. A full rating breakdown is provided at the end of the commentary.
Mega ICBC's ratings reflect the bank's strong domestic franchise in foreign exchange (forex) and trade finance, satisfactory asset quality and robust liquidity. The ratings are constrained by Mega ICBC's concentrated loan portfolio and moderate capital buffer compared with similarly rated regional peers. The Stable Outlook underlines Fitch's expectation that Mega ICBC will maintain its current credit profile, underpinned by its focus on prime corporate and retail clients and conservative growth strategy.
Mega ICBC's Support Rating and Support Rating Floor highlight the extremely high probability of state support for the bank given its role in providing foreign exchange settlement, its significant 6% market share of deposits as well as government's controlling ownership.
Mega ICBC's exposure to China increased rapidly following the regulatory liberalisation of banking policies between Taiwan and China in September 2011. Fitch is of the view that the impact of China-related exposures on the bank's risk profile should remain manageable in the near- to medium-term. This is because the exposure mainly relates to short-term trade financing and loans to Taiwanese companies operating in China. Fitch expects Mega ICBC's loan growth to remain subdued in 2013 in light of likely modest global recovery and lukewarm domestic activity.
Exposures to some financially weak technology companies and the property market may expose Mega ICBC to asset quality deterioration. Nevertheless, a marked erosion of capital is unlikely given the bank's reasonably conservative loan-to-value ratios at origination and much improved loan loss reserves. The bank has satisfactory asset quality, with an IFRS-based impaired loan ratio of 1.4% and loan loss reserves covering 76.4% of impaired loans at end-9M12.
Fitch forecasts Mega ICBC's profitability for 2013 to be generally in line with its 2012 result (annualised return on assets in 9M12: 1%), underpinned by its strong corporate banking franchise in Taiwan and dominant position in forex and trade finance markets. The bank has a strong deposit-taking franchise, ready access to funding (backed by close ties with the central bank) and a liquid investment portfolio, all of which contribute to its robust liquidity profile. Mega ICBC is well-capitalised with a Fitch core capital/risk weighted assets ratio of 10.4% (regulatory tier 1: 9.6%) at end-9M12.
SENSITIVITY/RATING DRIVERS: IDR's and VR's
Prospects for a positive rating action are remote in the near term, given the bank's already high rating and comparatively small franchise among 'A'-rated peers. A downgrade of the Long-Term IDR would be unlikely, as it is at the Support Rating Floor of 'A-'. A negative rating action on the VR may result from any excessive growth in higher-risk markets or an increase in risk appetite without enhancing its capital buffer or profitability.
Mega ICBC, which ranks as the fourth-largest bank in Taiwan by assets and deposits, has a network of 108 domestic branches and 32 overseas units. The bank is a wholly owned and principal operating subsidiary of Mega Financial Holding Company, of which the government is a dominant shareholder.
A Credit Update on Mega ICBC will shortly be available on www.fitchratings.com.
The detailed list of rating actions is as follows:
- Long-Term IDR affirmed at 'A-'; 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 'a-'
- Support Rating affirmed at '1'
- Support Rating Floor affirmed at 'A-'