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

E. Sun Financial Holding Co

05/09/2019 08:35

(The following statement was released by the rating agency)


Fitch Ratings-Taipei-September 05: 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

ESS's ratings and Outlook reflect Fitch's expectation of an extremely high 
probability of institutional support from ESFHC, whose credit profile is driven 
mainly by that of ESB. Fitch believes ESFHC has a strong capacity to support 
ESS, as any required support would be immaterial relative to the parent's 
ability to provide it. In addition, ESFHC's legal obligation under the framework 
of Taiwan Financial Holding Company Act requires it to provide support to ESS 
when needed. ESS represented less than 1% of the group's assets at end-1H19.

ESS shares the group's brand name and extensive network in Taiwan, and is also 
highly integrated with the parent in terms of strategy, liquidity, capital 
planning and risk management. Fitch expects ESS's domestic brokerage franchise 
to continue to strengthen through cross-selling to ESB's larger customer base. 
ESS's brokerage market share has grown consistently, to 1.8% by end-1H2019 (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 four years. Its flagship subsidiary, ESB, 
accounted for over 99% of group assets on a consolidated basis at end-1Q19. ESB 
has been gradually expanding its franchise in recent years, with a deposit 
market share of 4.9% at end-1Q19 versus 3.8% at end-2013. 

Fitch expects ESB to sustain its profitability above the sector average, based 
on its established niche in SME lending and with robust fee income driven mainly 
by the expansion of credit card business. Operating profit over risk-weighted 
assets rose to 1.4% by end-2018 (2017: 1.3%), compared with a sector average of 
1.2%. Asset quality should remain broadly stable in the near term despite trade 
tension. IFRS 9-standard stage 3 loans ratio has remained low at 0.8% at 
end-1Q19. 

We expect ESB to manage its credit growth to the extent that it can be supported 
by current capital level and income generation. Its Fitch Core Capital (FCC) 
ratio increased to 10.6% at end-2018 (versus 9.1% at end-2016), due to a rights 
issue in 1H17 and the regulator's relaxation of risk weights for mortgage and 
equity securities in 4Q17.

RATING SENSITIVITIES

NATIONAL RATINGS

ESS's ratings and Outlook are sensitive to changes in the risk profile of ESFHC 
and, ultimately, ESB. Any changes to the credit strength of ESB will trigger 
rating reviews on ESS. 

Downgrade drivers will most likely come from significant deterioration in ESB's 
asset quality, capitalisation and risk appetite, as a result of excessive 
risk-taking in pursuing growth - both locally or within the region. A sustained 
increase of common equity double-leverage ratio to above 120% at the holding 
company level could also result in a downgrade of ESS. Negative rating action 
could also arise from a material change in ESS's size relative to its parent, 
which would have an impact on the parent's capacity to provide support. Ratings 
upside of ESS would come from significant improvement in ESB's credit profile, 
which would be driven by enhanced capitalisation and company profile if it 
continues to consolidate its franchise to the extent that is comparable with 
higher-rated peers. 

Contact: 

Primary Analyst 

Rowena Chang

Associate Director

+886 2 8175 7602

Fitch Australia Pty Ltd, Taiwan Branch

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

Taipei, Taiwan

Secondary Analyst

Carol Liu

Associate Director

+86 21 6898 8001

Committee Chairperson

Mark Young

Managing Director

+44 20 3530 1318

Media Relations: Yee Man Ko, Hong Kong, Tel: +852 2263 9953, Email: 
alanis.ko@thefitchgroup.com; Leslie Tan, Singapore, Tel: +65 6796 7234, Email: 
leslie.tan@thefitchgroup.com; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, 
Email: wailun.wan@thefitchgroup.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. 12 Oct 2018)

https://www.fitchratings.com/site/re/10044407

Additional Disclosures 

Solicitation Status 

https://www.fitchratings.com/site/pr/10088265#solicitation

Endorsement Policy 

https://www.fitchratings.com/regulatory

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