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Fitch Affirms Jih Sun Financial Holding at 'BB+'/'A-(twn)'; Outlook Stable
July 18, 2017 / 4:35 AM / 4 months ago

Fitch Affirms Jih Sun Financial Holding at 'BB+'/'A-(twn)'; Outlook Stable

(The following statement was released by the rating agency) TAIPEI, July 18 (Fitch) Fitch Ratings has affirmed the ratings of Jih Sun Financial Holding Co., Ltd (JSH) and its subsidiaries, Jih Sun Securities Co.,Ltd (JSS) and Jih Sun International Bank (JSIB). The Outlook on all three entities is Stable. A full list of rating action is at the end of this commentary. KEY RATING DRIVERS IDRS, NATIONAL RATINGS AND VIABILITY RATING The Issuer Default Ratings (IDR), National Ratings and Viability Rating reflect a holistic assessment of JSH's credit profile and that of its two fully owned subsidiaries. We do not believe the profiles of the three entities can be meaningfully disentangled due to high integration, consolidated supervision and limited restriction of capital and liquidity fungibility within the group. The affirmation reflects the group's stable credit profile, largely underpinned by its sustained modest core profitability, moderate risk taking and low use of leverage. Fitch believes the group's credit strength will remain constrained by its weak franchise. The group does not have pricing power in either the securities or commercial banking business and lacks a competitive niche. This makes it vulnerable to fluctuations in the operating environment and capital markets, leading to variable performance over economic cycles. JSH's return on assets has ranged from 0.5%-1% during 2012-2016. The Stable Outlook reflects our expectation that the group will continue to expand selectively with adequate underwriting prudence. Its balance sheet has only grown modestly at about 3.6% per year over 2012-2016. Thus, the group is likely to maintain strong capitalisation with manageable asset quality. Fitch believes the group's intention to increase its small-to-medium enterprise exposure and its proprietary trading position will not alter our assessment of the group's risk appetite, which we consider as modest relative to peers. For example, JSIB's loan composition is not overly aggressive, with about 70% of its loan book being secured. About half of the loan portfolio consisted of mortgages, which are mostly owner-occupied and have a loan/value ratio of about 40%. Furthermore, stockholdings accounted for about 3% of total group assets, with a large part of its investment portfolio being government bonds and investment-grade private-sector bonds. The 'A-(twn)' National Ratings of the three entities correspond to their IDRs and reflect moderate default risk relative to domestic issuers in Taiwan. JSIB's Support Rating of '5' and Support Rating Floor of 'No Floor' reflect our belief that there is low likelihood of sovereign support due to its small deposit franchise and limited systemic importance. SUBORDINATED DEBT JSIB's non-Basel III-compliant subordinated bond is rated one notch below its National Long-Term Rating to reflect its subordinated status and the absence of going-concern loss-absorption features. JSIB's Taiwanese Basel III Tier 2 (BIIIT2) capital is rated two notches below its anchor rating - the National Long-Term Rating. This comprises of zero notching for non-performance risk and two notches for loss severity. Wider notching than Fitch's base case of one notch reflects the poor recovery prospects for Taiwanese BIIIT2 debt at the point of non-viability or government receivership. Taiwan's authorities would only move a bank into insolvency administration when it reaches a very low capital level or a 2% capital adequacy ratio, reducing the recovery prospects for BIIIT2 debt. The above notching practices are in accordance with Fitch's criteria on rating bank regulatory capital and similar securities. RATING SENSITIVITIES IDRS, NATIONAL RATINGS AND VIABILITY RATING The group's IDRs and National Ratings are Viability Rating-driven and have a Stable Outlook. The ratings have already captured its weakened securities franchise, as brokerage market share has dropped to 3.2% in 2016, from 4.1% in 2010. Rating downgrade pressure is limited unless the group incurs unexpected large trading losses or loan impairments that significantly weaken its capital profile. An upgrade is likely if the group can improve its franchise meaningfully, bringing up its profitability to sector average while maintaining stable risk appetite. SUPPORT RATING AND SUPPORT RATING FLOOR The Support Rating and Support Rating Floor are sensitive to any change in assumptions around the propensity or ability of Taiwan's government to provide timely support to JSIB. SUBORDINATED DEBT Any rating action on JSIB's National Long-Term Rating could trigger a similar move on its debt ratings. The full list of rating actions is as follows: JSH Long-Term Foreign-Currency IDR affirmed at 'BB+'; Outlook Stable Short-Term Foreign-Currency IDR affirmed at 'B' National Long-Term Rating affirmed at 'A-(twn)'; Outlook Stable National Short-Term Rating affirmed at 'F2(twn)' Viability Rating affirmed at 'bb+' JSIB Long-Term Foreign-Currency IDR affirmed at 'BB+'; Outlook Stable Short-Term Foreign-Currency IDR affirmed at 'B' National Long-Term Rating affirmed at 'A-(twn)'; Outlook Stable National Short-Term Rating affirmed at 'F2(twn)' Viability Rating affirmed at 'bb+' Subordinated debt (non-Basel III-compliant) rating affirmed at 'BBB+(twn)' Subordinated debt (Basel III Tier 2 capital) rating affirmed at 'BBB(twn)' Support Rating affirmed at '5' Support Rating Floor affirmed at 'NF' JSS Long-Term Foreign-Currency IDR affirmed at 'BB+'; Stable Outlook Short-Term Foreign-Currency IDR affirmed at 'B' National Long-Term Rating affirmed at 'A-(twn)'; Stable Outlook National Short-Term Rating affirmed at 'F2(twn)' In accordance with Fitch's policies, the issuer appealed and provided additional information to Fitch that resulted in a rating action that is different than the original rating committee outcome. Contact: Primary Analyst Jenifer Chou, CFA, FRM Director +886 2 8175 7605 Fitch Australia Pty Ltd, Taiwan Branch Suite 1306, 13F, Tun Hwa N. Rd., Taipei Secondary Analyst Rowena Chang Associate Director +886 2 8175 7602 Committee Chairperson Parson Singha Senior Director +66 2108 0151 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. Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: Additional information is available on Applicable Criteria Global Bank Rating Criteria (pub. 25 Nov 2016) here Global Non-Bank Financial Institutions Rating Criteria (pub. 10 Mar 2017) here National Scale Ratings Criteria (pub. 07 Mar 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy 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 WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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