Fitch Affirms Taiwan's E.Sun Securities at 'AA-(twn)'

E. Sun Financial Holding Co

12/09/2018 04:28

(The following statement was released by the rating agency)


Fitch Ratings-Hong Kong/Shanghai-September 11: Fitch Ratings has affirmed 
Taiwan-based E.Sun Securities Co., Ltd's (ESS) National Long-Term Rating at 
'AA-(twn)' and its National Short-Term Rating at 'F1+(twn)'. The Outlook is 
Stable. ESS is a wholly owned subsidiary of E.Sun Financial Holding Company 
(ESFHC), of which the principal and fully owned subsidiary is E.Sun Bank (ESB).

KEY RATING DRIVERS 

NATIONAL RATINGS

Fitch's ratings and Outlook on ESS remain tied to the risk profile of the group, 
which is driven mainly by that of ESB. The ratings reflect a high probability of 
institutional support from ESFHC, based on ESS's small size in relation to that 
of the parent group together with ESFHC's obligation to provide support under 
Taiwan's Financial Holding Act, and a high level of integration.

ESS represents less than 1% the group's assets, and any required support would 
be immaterial relative to ESFHC's ability to provide it. ESS is integrated with 
the group in terms of brand sharing, liquidity, capital planning and risk 
management. Fitch expects its brokerage franchise to continue to strengthen 
through cross-selling to ESB's larger customer base. ESS's share of the 
brokerage market by stocks traded had risen to 1.8% by end-1H18 (from 0.8% at 
end-2008). 

ESFHC is a bank-centric financial holding company, and has reported modest 
double-leverage of 104% for the past three years. Its flagship subsidiary, ESB, 
accounted for over 95% of group assets at end-1H18. ESB is a mid-sized private 
bank and has gradually consolidated its franchise in recent years, with a 
deposit market share of 4.6% versus 4% at end-2014. 

Fitch expects ESB to sustain its profitability above the sector average, based 
on its established niche in SME lending and with robust fee income, primarily 
from its credit card and wealth-management franchise. Average pre-tax return on 
assets rose to 1% in 1H18 (2017: 0.87%), compared with the sector average of 
0.74%. Our asset-quality outlook would be broadly stable in the near term in a 
steady economy. IFRS 9-standard stage 3 loans have remained low, at 0.87% of 
total loans. 

We expect ESB will manage its credit growth and continue to meet Taiwan's 
additional 200bp pillar II buffer for offshore expansion. Its consolidated Fitch 
Core Capital ratio had improved to 10.5% by end-2017 (from 9.1% at end 2016), 
helped by a rights issue in June 2017 and the regulator's relaxation of risk 
weights for mortgage and equity securities in 4Q17.

RATING SENSITIVITIES

NATIONAL RATINGS 

[ESS's ratings are sensitive to changes in the risk profile of ESFHC and 
ultimately ESB. Downgrade drivers will most likely come from significant 
deterioration in ESB's asset quality and capitalisation, as a result of 
excessive risk-taking in pursuit of yield - both locally or within the region. A 
sustained increase of common equity double leverage ratio to above 120% could 
also result in a downgrade of ESS. Ratings upside of ESS would come from 
significant improvement in ESB's balance-sheet strength, which is less likely in 
the near term.]

Contact:

Primary Analyst

Shirley Hsu

Associate Director

+886 2 8175 7606

Fitch Australia Pty Ltd, Taiwan Branch

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

Taipei, Taiwan

Secondary Analyst

Borhan Lin

Analyst

+86 21 6898 7985

Committee Chairperson

Mark Young

Managing Director

+44 20 3530 1318

Media Relations: Leslie Tan, Singapore, Tel: +65 6796 7234 , Email: 
leslie.tan@fitchratings.com; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935 , 
Email: wailun.wan@fitchratings.com.

Additional information is available on www.fitchratings.com

Applicable Criteria 

National Scale Ratings Criteria (pub. 18 Jul 2018)

https://www.fitchratings.com/site/re/10038626

Non-Bank Financial Institutions Rating Criteria (pub. 22 Jun 2018)

https://www.fitchratings.com/site/re/10034715

Additional Disclosures 

Solicitation Status 

https://www.fitchratings.com/site/pr/10044418#solicitation

Endorsement Policy 

https://www.fitchratings.com/regulatory

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