December 18, 2017 / 8:35 AM / a year ago

Fitch: CTBC Group's Ratings Not Immediately Affected by Penalties

(The following statement was released by the rating agency) TAIPEI, December 18 (Fitch) Penalties imposed on CTBC Financial Holding Co., Ltd. (CTBC Holdings; A-/Stable/a-) by the Financial Supervisory Commission (FSC) for alleged deficiencies in internal controls and compliance are unlikely to immediately affect the company's ratings or those of other group companies, including CTBC Bank Co., Ltd. (A/Stable/a), CTBC Securities Co., Ltd. (A-/Stable) and Taiwan Life Insurance Co., Ltd. (A-/Stable), says Fitch Ratings. This is because Fitch does not expect the penalties to change the group's financial profile nor franchise, particularly that of its flagship subsidiary, CTBC Bank. The group's ratings are underpinned by CTBC Bank. The bank's ratings reflect its leading domestic franchise and sound capitalisation relative to its risk profile, as well as centralised risk management, solid asset quality and diverse earnings mix. This was reiterated in Fitch's latest rating action commentary <a href="">Fitch Affirms CTBC Bank; Downgrades CTBC Holding and Taiwan Life, dated 20 September 2017, when Fitch affirmed the bank's ratings but downgraded the ratings of the parent and two of its subsidiaries. CTBC Holdings is rated one notch below CTBC Bank, reflecting the holding company's higher leverage and the weaker standalone credit profile of the group's expanding life insurance arm, Taiwan Life, relative to CTBC Bank. The latest rating action also considered that the FSC examination into alleged misconduct at CTBC Holdings had been ongoing since it was first made public in June 2016. CTBC Bank and the group's businesses have been operating normally, despite the allegations and legal proceedings. We believe this not only reflects the bank's strength as the largest private bank in Taiwan, but also the group's strategy having been well publicised and on track in terms of execution. The bank's deposit market share rose slightly to 6.3% as of October 2017, from 5.9% as of June 2016. Moreover, the group has taken steps to maintain continuity in the execution of its strategy in response to the FSC's latest sanctions. Nevertheless, the misconduct allegations and legal proceedings against relevant group personnel are ongoing and a risk remains that the group's ratings could be negatively affected if there are business sanctions or fines large enough to affect its capital, if there are substantial constraints on the group's operations or if there are signs indicating damage to the group's franchise. However, this is not our base case, as flagged in our rating action commentary on CTBC Group, <a href=" ">Fitch Affirms CTBC Group at 'A'; Outlook Negative, dated 21 September 2016. For other rating sensitivities not specifically linked to the misconduct allegations, please refer to Fitch's latest rating action commentary and credit updates on the group at <a href="">www.fitchratings.c om Contact: Sophia Chen, CFA, CPA Director +886 2 8175 7604 Fitch Australia Pty Ltd, Taiwan Branch Suite 1306, 13F, 205, Tun Hwa N. Road Taipei Jenifer Chou, CFA, FRM Director +886 2 8175 7605 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: Additional information is available on 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. 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. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. 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.

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