Fitch: Taiwan Financial Firms' Structural Changes Affect Ratings

KGI Financial Holding

10/08/2016 02:10

(The following statement was released by the rating agency)

Link to Fitch Ratings' Report: Evolution of Taiwanese Financial Groups

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=884166

TAIPEI/SINGAPORE, August 09 (Fitch) Several of Taiwan's financial holding 
companies (FHCs) have altered their business models significantly in the last 
few years, resulting in changes to group credit profiles and rating actions, 
says Fitch Ratings in its latest Special Report. These structural changes are 
often the result of new acquisitions which have resulted in an overall rise in 
leverage. Fitch believes these trends could continue as FHCs seek to boost 
growth and profitability through inorganic expansion and a shifting business 
mix. 

Taiwanese financial groups have been facing a protracted, challenging domestic 
operating environment characterised by weak economic growth and low interest 
rates. Low growth prospects have particularly prompted those FHCs which had 
previously been securities-focused- including Yuanta Group and China Development 
Group - to substantially expand their banking exposure. They have been motivated 
to enhance long-term competitiveness and shareholder returns by taking advantage 
of comparably lower capital requirements for commercial banks than for 
securities firms. Raising their banking exposure also allows these financial 
groups to gain greater access to a retail customer base. 

Fitch believes that growth through acquisition could continue to be a theme in 
Taiwan should the low-margin operating environment persist. Notably, the FHC's 
have historically been underpinned by a single key subsidiary that formed the 
group's flagship business. But this has been changing as some groups add on a 
new core business, transforming their consolidated profiles in the process. 

These kinds of structural transitions can result in a change in Fitch's ratings 
approach and revisions to the FHC and subsidiary entity ratings. This is 
especially the case as FHCs are now more likely to have multiple principal 
operating subsidiaries. In the cases of Yuanta and China Development, evolution 
of their business models prompted Fitch to assess their credit profiles using a 
common ratings approach rather than the previously used anchor approach. This 
reflected the fact that their securities subsidiaries alone could no longer 
sustain the groups' credit profiles. 

Fitch analysed the evolution of Taiwanese FHC business models and the potential 
ratings implications in its latest Special Report "Evolving Taiwanese Financial 
Groups". The report is available to subscribers by clicking the link above or at 
www.fitchratings.com. 

Contacts:

Jenifer Chou, CFA FRM

Director

Financial Institutions

+886 8175 7605

Fitch Australia Pty Ltd, Taiwan Branch

Suite 1306, No. 205 Tun Hwa North Road

Taipei

Jonathan Lee

Senior Director

Financial Institutions

+886 8175 7601

Justin Patrie, CFA

Fitch Wire

+65 6796 7232

Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: 
leslie.tan@fitchratings.com; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: 
wailun.wan@fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market 
commentary page. The original article can be accessed at www.fitchratings.com. 
All opinions expressed are those of Fitch Ratings.

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