Fitch Rates Bank of Kaohsiung's TWD1.5 Billion Bond 'A(twn)'

Bank of Kaohsiung

06/03/2018 02:22

(The following statement was released by the rating agency)


Fitch Ratings-Taipei-March 05: Fitch Ratings has today assigned Taiwan-based 
Bank of Kaohsiung Co., Ltd.'s (BOK; AA-(twn)/Stable) upcoming TWD1.5 billion 
subordinated unsecured bond a National Long-Term Rating of 'A(twn)'. 

The Basel III-compliant Tier 2 (B3T2) bond has a non-viability trigger 
provision, which requires the bond to be ranked equally with common shares upon 
government receivership, regulatory order for resolution or liquidation. The 
bond matures on 15 March 2025. The proceeds will be used for the bank's general 
corporate purposes.   

KEY RATING DRIVERS 

SUBORDINATED DEBT 

The B3T2 bond's 'A(twn)' National Rating is two notches below BOK's National 
Long-Term Rating of 'AA-(twn)'. This comprises zero notching for non-performance 
risk and two notches for loss severity, reflecting the poor recovery prospects 
for Taiwanese B3T2 debt. Taiwan's B3T2 bonds adopt a less easily triggered 
government receivership as the point of non-viability. Fitch believes Taiwan's 
authorities would take receivership over a bank only when the bank's total 
capital adequacy has fallen to below 2%, reducing the recovery prospects for 
B3T2 notes.  

The anchor rating for the subordinated bonds is BOK's National Long-Term Rating, 
which is based on a high probability of support from the Kaohsiung City 
Government (KCG), which owns a controlling 43% stake in the bank, or from the 
Taiwan sovereign (AA-/Stable), which will flow through the city government, if 
needed. This is because Fitch believes that KCG and the central government have 
a strong interest in supporting BOK to fulfil its financial obligations. 

The aforementioned notching practices for subordinated bonds are in accordance 
with Fitch's criteria on rating the bank regulatory capital of financial 
institutions. 

RATING SENSITIVITIES

SUBORDINATED DEBT 

Any change to BOK's National Long-Term Rating is likely to trigger a similar 
change in its debt ratings. 

Contact: 

Primary Analyst 

Sophia Chen, CFA, CPA

Director

+886 2 81757604

Fitch Australia Pty Ltd, Taiwan Branch

Suite 1306, 13F, Tun Hwa N. Rd., Taipei

Secondary Analyst

Cherry Huang, CFA

Director

+886 2 81757603

Committee Chairperson 

Parson Singha

Senior Director

+66 2108 01514

Date of Relevant Rating Committee: 27 February 2018

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: 
wailun.wan@fitchratings.com.

Additional information is available on www.fitchratings.com

Applicable Criteria 

Global Bank Rating Criteria (pub. 25 Nov 2016)

https://www.fitchratings.com/site/re/891051

National Scale Ratings Criteria (pub. 07 Mar 2017)

https://www.fitchratings.com/site/re/895106

Additional Disclosures 

Solicitation Status 

https://www.fitchratings.com/site/pr/10022448#solicitation

Endorsement Policy 

https://www.fitchratings.com/regulatory

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