(The following statement was released by the rating agency)
Nov 07 - Fitch Ratings has upgraded Taiwan-based SinoPac Financial Holdings’ (SPH) Long-Term Issuer Default Rating (IDR) to ‘BBB’ from ‘BBB-', and Viability Rating to ‘bbb’ from ‘bbb-'. The Outlook is Stable. The agency has also affirmed SPH’s principal subsidiary, Bank SinoPac (BSP), at ‘BBB’ with Stable Outlook. A full rating breakdown is provided at the end of this comment.
The upgrade follows Fitch’s re-assessment of SPH’s credit profile and the group’s structure. Under the agency’s new criteria ‘Rating FI Subsidiaries and Holding Companies’, SPH’s Long-Rerm ratings and Viability Rating are equalised with those of BSP, based on the close linkage between the two under the Financial Holding Company Act and modest leverage at the holding parent. Moreover, the group’s IDR is mainly driven by the financial strength of BSP, which accounted for 91% of the group’s consolidated assets at end-Q212.
SPH’s IDR and Viability Rating reflect the group’s consolidated credit profile and, on a standalone basis, its modest leverage with a double leverage ratio of 109.48% at end- H112. BSP’s IDRs and Viability Rating reflect its stable banking franchise and improved core earnings with a return on equity of annualised 10.6% in H112, versus 3.5% in 2011. They also factor in the bank’s comparably moderate internal capital generation in Asia Pacific. The Stable Outlook of both entities underlines Fitch’s expectation that the consolidated group will maintain its current credit profile amid an increasingly challenging economic environment.
Positive rating action on BSP and the group may result from a significant and sustainable improvement in risk-adjusted core earnings and strengthening of capitalisation. Negative rating action may result from significant asset quality deterioration and weakening capitalisation arising from aggressive growth in corporate finance, particularly in association with China. BSP’s concentration on property-related exposures may also undermine its ratings if the property market in Taiwan reverses markedly.
Founded in 2002, SPH is a medium-sized bank holding company with consolidated assets of TWD1.32trn at end-H112. It provides diversified financial services through its two major subsidiaries, BSP and SPS, and five small subsidiaries in other financial sectors. BSP has 129 branches and commanded a 3.57% market share in deposits at end-H112. Taiwan-based conglomerate, Yong Foong Yu Group and its majority owner, Show Chung Ho, through his investment vehicles, are the group’s largest shareholders and controls six out of 12 board seats.
For further information, see rating affirmation commentary for SPH and BSP on 2 October 2012 on www.fitchratings.com.
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 ‘A+(twn)'; Outlook Stable
National Short-Term rating: affirmed at ‘F1+(twn)’
Viability Rating: affirmed at ‘bbb’
Support Rating: affirmed at ‘3’
Support Rating Floor: affirmed at ‘BB+’
Long-Term IDR: upgraded to ‘BBB’ from ‘BBB-'; Outlook Stable
Short-Term IDR: upgraded to ‘F2’ from ‘F3’
National Long-Term rating: upgraded to ‘A+(twn)’ from ‘A(twn)'; Outlook Stable
National Short-Term rating: upgraded to ‘F1+(twn)’ from ‘F1(twn)’
Viability Rating: upgraded to ‘bbb’ from ‘bbb-’
Support Rating: affirmed at ‘5’