(The following was released by the rating agency)
TAIPEI/SYDNEY, January 09 (Fitch) Fitch Ratings has affirmed Taiwan-based Jih Sun Financial Holding Co., Ltd (JSH) and its wholly-owned subsidiaries, Jih Sun Securities Corp., Ltd (JSS) and Jih Sun International Bank (JSIB). The Outlooks are Stable.
At the same time, Fitch has assigned JSIB’s TWD2.5bn outstanding unsecured subordinated bond a National Long-Term rating of ‘BBB+(twn)’ .
A full rating breakdown can be found at the end of this commentary.
JSH’s IDRs reflect the group’s consolidated credit profile, and, on a standalone basis, its improved liquidity and lower double leverage. The group’s IDRs are primarily driven by the financial strength of one of its main operating subsidiaries, JSS.
The ratings have incorporated the group’s potential obligation to support its weaker banking subsidiary JSIB, in case of need. JSS’s IDRs reflect its long history and established position in Taiwan’s stock brokerage market, strong capitalisation, satisfactory liquidity, and modest risk exposure. The ratings are constrained by the company’s volatile trading performance.
JSS has remained profitable despite challenging market conditions, due to its large brokerage franchise and cost restraint.
The Stable Outlook reflects Fitch’s belief that JSS’s franchise would remain sound and profitable. Rating upgrade is unlikely in the near term given its potential obligation to support JSIB. Negative rating action may result from large unexpected trading losses leading to deterioration in the company’s capitalisation or from large capital support for JSIB. JSIB’s IDRs are equalised with those of its holding parent to reflect its status as a core component of JSH and obligatory support from its holding parent.
Its Viability Rating (VR) reflects its continuing improvement in risk governance, adequate capitalisation, and a clean-up of its legacy loan portfolio prior to 2009. The VR has also considered JSIB’s limited business scope and weak recurring earnings. JSIB’s VR may be upgraded if continuing improvements in asset quality are sustained while costs are being reduced to generate sufficient pre-provision operating income as capital buffer for loan impairments.
Conversely, negative rating action may result from deterioration in asset quality, most likely due to growth from rebuilding its loan portfolio. JSH posted modest profit in 2011 and Q312 after trading losses in JSS were offset by JSS’s own resilient brokerage income and earnings from JSIB. The group is likely to remain profitable although earnings will be affected by the inherent volatility of trading income. JSH and its subsidiaries have adequate capitalisation.
JSH’s sum-of-parts capital ratio was 184.1% at end-Q312, TWD11.9bn above the minimum regulatory requirement of 100%. JSIB’s Tier 1 Capital and Fitch Core Capital ratio remained adequate at 11.6% and 13.5%, respectively, little changed from 11.4% and 13.2% at end-2011.
JSS’s capital adequacy ratio of 657% at end-Q312 was well above the regulatory minimum of 150%. The liquidity profiles of JSH, JSS, and JSIB remain adequate with cash dividends inflow from subsidiaries providing reasonable cover for interest and expenses at the holding company level, as well as demonstrated access to the capital market.
The subordinated bond rating of JSIB is one notch below the bank’s National Long-Term rating, reflecting its subordinated status and the absence of any going-concern loss-absorption mechanism (such as coupon deferral under specified conditions). Any rating action on JSH, JSS, or JSIB is likely to trigger a similar move in its debt ratings.
The group’s major shareholders are US-based private-equity firm, Capital Target and Japan’s Shinsei Bank, with equity interests of 24.1% and 35.5%, respectively. JSS is one of the larger and longest established securities companies in Taiwan with a market share of 3.87% as at end-Q312. JSIB is a small bank in Taiwan with deposit market share of 0.58% at end-Q312.