Fitch Affirms Taiwan's China Bills Finance Corporation at 'BBB'

China Bills Finance

04/03/2016 03:05

(The following statement was released by the rating agency)

TAIPEI, March 03 (Fitch) Fitch Ratings has affirmed Taiwan-based China Bills 
Finance Corporation's (CBF) ratings, including its Long-Term Issuer Default 
Rating (IDR) at 'BBB'. The Outlook is Stable. A full list of rating actions is 
provided at the end of this commentary. 

KEY RATING DRIVERS 

IDRS, NATIONAL RATINGS AND VIABILITY RATING

CBF's IDRs, National Ratings and Viability Rating reflect its established market 
position in the Taiwanese bills finance sector, generally sound underwriting 
quality in the guarantee business, and adequately managed core capitalisation. 
They also factor in the structural weaknesses, including limited business scope, 
susceptibility to interest-rate volatilities, reliance on wholesale funding and 
higher concentration risk in credits and liquidity compared to domestic banks. 

The Stable Outlook underlines Fitch's expectation that CBF will remain 
disciplined in risk-taking and maintain satisfactory capitalisation and adequate 
liquidity relative to its growing commercial paper guarantee book and larger 
investments in bonds and bills. Meanwhile, risk associated with a sudden, 
unexpected interest rate increase is mitigated by the short duration of its 
fixed-income investments.  

CBF's capitalisation remained sound despite its larger investments in bonds and 
bills following the central bank's rate cuts in 2H15. The increase in 
risk-weighted assets was moderate and smaller than the rise in internal capital 
generation as most of the new fixed-income investments were of investment grade 
and short duration. Its Fitch Core Capital ratio increased to 13.9% at end-2015 
from 13.4% at end-2014.   

Fitch believes risks associated with CBF's moderately rising guarantee exposures 
to the property sector should be manageable. The company focuses on creditworthy 
corporates and the loan-to-value ratio is reasonably conservative at around 50%. 
Meanwhile, CBF has a liquid balance sheet and the credit quality of underlying 
assets is good. This effectively mitigates the associated risks from its 
reliance on wholesale funding.  

SUPPORT RATING AND SUPPORT RATING FLOOR

CBF's Support Rating and Support Rating Floor reflect the limited probability of 
government support, if needed.

RATING SENSITIVITIES

IDRS, NATIONAL RATINGS AND VIABILITY RATING

CBF's ratings are constrained by the aforementioned structural limitations. 
Negative rating action may result from any compromises in underwriting quality, 
weakened capitalisation arising from aggressive growth in the guarantee book or 
market risk, or unexpected market disruptions resulting in liquidity stress. 

CBF's planned merger with its largest shareholder Industrial Bank of Taiwan 
(IBT) was postponed as IBT focuses on transforming itself into a commercial bank 
in 2016-2017. Fitch believes that the merger with IBT would likely be negative 
for CBF's ratings, considering IBT's weaker credit profile. Any announcements on 
the merger details could trigger an event-driven rating action.  

SUPPORT RATING AND SUPPORT RATING FLOOR

The Support Rating and Support Rating Floor are sensitive to changes in 
assumptions around the government's propensity to provide timely support.  

The rating actions are as follows:

Long-Term IDR affirmed at 'BBB'; Outlook Stable

Short-Term IDR affirmed at 'F3'

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 '4'

Support Rating Floor affirmed at B+'

Contact: 

Primary Analyst 

Sophia Chen, CFA, CPA 

Director 

+886 2 8175 7604

Fitch Australia Pty Ltd, Taiwan Branch 

Suite 1306, 13F, 205, Tun Hwa N. Rd.

Taipei, Taiwan

Secondary Analyst

Clark Wu

Associate Director 

+886 2 8175 7602

Committee Chairperson 

Tim Roche

Senior Director  

+61 2 8256 0310

Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: 
wailun.wan@fitchratings.com.

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.

Additional information is available on www.fitchratings.com.

Applicable Criteria 

Global Bank Rating Criteria  (pub. 20 Mar 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=863501

National Scale Ratings Criteria (pub. 30 Oct 2013)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=720082

Additional Disclosures 

Dodd-Frank Rating Information Disclosure Form 

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr 
_id=1000436

Solicitation Status 

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1000436

Endorsement Policy 

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&det 
ail=31

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