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May 19 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has affirmed Taiwan-based Hua Nan Commercial Bank’s (HNB) ratings, including its Long-Term Issuer Default Rating (IDR) at ‘BBB+'. The Outlook is Stable. A full list of rating actions is at the end of this rating action commentary.
KEY RATING DRIVERS - IDRS, NATIONAL RATINGS, SUPPORT RATING AND SUPPORT RATING FLOOR
The affirmation of HNB’s IDRs and National ratings are driven by its Support Rating (SR) and Support Rating Floor (SRF), which reflect the high probability of support from the state given its systemic importance. This is evident in the state’s long-term and majority ownership (currently around 23%) in its parent, Hua Nan Financial Holding Company, and the bank’s leading franchise with the third-largest branch network in Taiwan and a 5.7% deposit market share.
The Stable Outlook reflects Fitch’s expectation that the state’s ability and/or propensity to support HNB will not weaken.
RATING SENSITIVITIES - IDRS, NATIONAL RATINGS, SUPPORT RATING AND SUPPORT RATING FLOOR
The bank’s IDRs, National Ratings, SR and SRF are sensitive to any change in assumptions around the ability or propensity of the state to provide timely support to the bank. This would most likely be manifested in a change to Taiwan’s sovereign rating (A+/Stable) or a move towards full privatisation of the bank.
The bank’s VR primarily reflects its strong domestic franchise, particularly among SMEs, ordinary support from the state and adequate capitalisation relative to its moderate risk profile. While HNB’s 11%-12% Fitch Core Capital ratio - after adjusting for greater capital charges for mortgages in Taiwan - is satisfactory compared with regional peers, its earnings are slightly weaker than the peer average and its growth plan in China may weaken its capitalisation.
Excessive growth and aggressive M&A in China, leading to weaker capitalisation and risk profile, is the most likely trigger for a VR downgrade. A VR upgrade could occur if HNB can sustain higher profitability and stronger internal capital generation in line with better-rated peers but without significantly raising its risk appetite.
The rating actions are as follows:
Long-Term IDR affirmed at ‘BBB+'; 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 ‘bbb-’
Support Rating affirmed at ‘2’
Support Rating Floor affirmed at ‘BBB+'