Fitch Places Shin Kong Group's Ratings on Watch Negative

(Text provided by rating agency)

TAIPEI/HONGKONG/SINGAPORE, October 07 (Fitch) - Fitch Ratings has today placed the following ratings of Taiwan's Shin Kong Financial Holding Co. Ltd. (SKFH) and its subsidiaries Shin Kong Life Insurance Company Ltd. (SKL), Taiwan Shin Kong Commercial Bank (SKB) and Shin Kong Securities (SKSC) on Rating Watch Negative (RWN), as follows: - SKFH: Long-term Issuer Default Rating (IDR) 'BBB-' (BBB minus), Short-term IDR 'F3', National Long-term 'A(twn)' and National Short-term 'F1(twn)'; - SKL: Insurer Financial Strength (IFS) rating 'BBB+' and National IFS rating 'AA-(twn)' (AA minus(twn)); - SKB: Long-term IDR 'BBB-' (BBB minus), Short-term IDR 'F3', National Long-term 'A(twn)', National Short-term 'F1(twn)' and Support '2'; - SKSC: Long-term IDR 'BBB-' (BBB minus), Short-term IDR 'F3', National Long-term 'A(twn)', National Short-term 'F1(twn)' and Support '2'.

The following ratings have been affirmed: - SKB: Individual at 'D'; - SKSC: Individual at 'D'. The RWN mainly reflects that SKFH's largest subsidiary SKL faces increased pressure on maintaining adequate capitalisation. SKL's H108 loss substantially reduced its capital cushion and the agency views that recent unfavourable capital market movements would likely impair its capitalisation further.

Nonetheless, Fitch understands there has been positive progress in its parent company SKFH's fund raising, including TWD8bn common shares and TWD4.7bn sub-debts, to support SKL's potential capital needs. The RWN would be resolved upon completion of the capital raising. SKL's capitalistaion weakened despite the TWD10bn new capital injected by SKFH in H108.

The TWD12.9bn loss made in H108 and the drop in value of available-for-sale assets reduced its total equity by 18% to TWD49.2bn at end-H108, although its risk-based capital (RBC) ratio remained above the statutory minimum level of 200%

. Its poor financial results are attributable to the significant FX loss and impairment charges on its offshore investments. In response to the large FX loss and increased uncertainty in the foreign exchange market, SKL increased direct hedging in Q208.

Nonetheless, the recent sharp correction of Taiwan's stock market and the fallout of the US subprime crisis may pose further losses and impair its capitalisation. Potential defaults by large corporates may lead to losses in SKL's investments of corporate bonds and related structured credits.

SKFH is committed to maintaining SKL's RBC ratio at above the minimum requirement of 200%, and issued TWD4.7bn sub debts with a maturity of seven years in September 2008 and plans to raise TWD8bn common equity in Q408 to strength SKL's capital position. Fitch expects this capital raising plan to largely offset the potential negative impact of recent unfavourable market movements. Both SKB's and SKSC's financial profiles have been generally steady since Fitch's last review in May 2008.

SKB's profitability remained modest with an annualised ROE of 6.5% in H108 and asset quality and capitalisation still adequate; nonetheless, Fitch notes the US credit turmoil could impact some of SKB's offshore debt investments.

SKSC reported a small loss in H108 as the weak performance in proprietary trading offset the improvement in brokerage revenues. It maintained good liquidity and capital positions.

SKFH, founded in 2002, is one of 15 financial holding companies in Taiwan. It provides comprehensive financial services to more than six million customers through an extensive distribution network.

SKFH has built up one of Taiwan's most comprehensive financial service providers with operations in the insurance, banking, securities and asset management sectors. Its largest subsidiary, SKL, is the third-largest life insurer in Taiwan with a market share of 11.4% by total premiums in H108. Contacts: Joyce Huang, Jonathan Lee, Taipei, +886 2 8175 7600/ jonathan.lee@fitchratings.com & joyce.huang@fitchratings.com; Stanley Tsai, Hong Kong, +852 2263 9920/ stanley.tsai@fitchratings.com.