Fitch Affirms Taishin Group; Outlooks Stable

TS Financial Holding Co

21/09/2016 05:27

(The following statement was released by the rating agency)

TAIPEI, September 21 (Fitch) Fitch Ratings has affirmed the ratings of Taishin 
Financial Holding Co., Ltd. (TFHC) and its subsidiaries, Taishin International 
Bank (TIB) and Taishin Securities Co., Ltd. (TSS). The Outlooks on all three 
entities are Stable. A full list of ratings is provided at the end of this 
commentary.

KEY RATING DRIVERS 

IDRS, NATIONAL RATINGS AND VIABILITY RATINGS

The affirmation of TFHC is in line with the rating action on its principal 
banking subsidiary - TIB. TFHC's Long-Term Issuer Default Rating (IDR) is rated 
one-notch below that of TIB to reflect Fitch's view that TFHC may have a higher 
appetite for leverage and its double leverage ratio (DLR) could vary markedly 
with an appetite for opportunistic growth and acquisitions. The group's DLR was 
117.5% at end-1H16. 

Fitch believes capital is generally fungible between TFHC and TIB and assesses 
their capital profile on a consolidated basis. TFHC plans to issue preferred 
shares towards the end of 2016. Fitch sees this is to alleviate the group's 
funding pressure and potentially moderate its leverage. This would also enhance 
TIB's capitalisation to a more comparable level with similarly rated peers on a 
standalone basis.

TIB's affirmation and the Stable Outlook on its ratings reflect its superior 
profitability, which is underpinned by its strength in consumer finance and 
adequately managed risk profile. However, profitability could fall as margins 
continue to narrow, credit costs start picking-up and competition in wealth 
management and the credit card market intensifies. TIB's profitability 
decelerated in 1H16, generating an annualised return on assets of 0.8%. Its net 
interest margin and fee income declined modestly and provisioning costs 
increased, mainly due to selling of derivatives (Target Redemption Forward). 

The ratings of TSS are aligned with its parent, TFHC, reflecting its status as a 
core subsidiary, the obligatory support from TFHC under Taiwan's Financial 
Holding Company Act and the inseparability of TSS's profile from that of TFHC. 

SUPPORT RATING AND SUPPORT RATING FLOOR 

TIB's Support Rating and Support Rating Floor reflect its moderate systemic 
importance and moderate probability of state support, if needed. 

SUBORDINATED DEBT 

TFHC's subordinated bonds are rated three notches below its National Long-Term 
Rating, reflecting the bonds' subordination status and going-concern 
loss-absorption features. The bond's rating has thus been affirmed due to the 
affirmation of TFHC's National Long-Term Rating. TIB's subordinated bonds are 
rated one notch below its National Long-Term Rating to reflect their 
subordinated status and the absence of the going-concern loss-absorption 
feature. 

RATING SENSITIVITIES

IDRS, NATIONAL RATINGS AND VIABILITY RATINGS

TIB's IDRs, National Ratings and Viability Rating are sensitive to changes in 
Fitch's assessment of TIB's ability to sustain its consumer banking franchise 
while managing relatively high loan growth without undermining its risk profile. 
Rating pressure would also build if TFHC pursues large-scale acquisitions that 
lead to weakening of the group's capital buffer.

Any changes in TIB's ratings will affect the ratings of TFHC and TSS to a 
similar extent. TFHC's ratings will be aligned to those of TIB if TFHC 
establishes a record of prudent leverage use by maintaining its double leverage 
ratio consistently on par with or below those of sector peers and TIB's 
capitalisation improves to a level comparable with similarly-rated peers.

SUPPORT RATING AND SUPPORT RATING FLOOR 

TIB's Support Rating and Support Rating Floor are sensitive to a change in 
Fitch's assumptions around the propensity or ability of the Taiwan government to 
provide timely support, if needed. An upgrade of Taiwan's sovereign rating 
(A+/Positive) is less likely to affect the bank's Support Rating or Support 
Rating Floor due to its modest systemic importance.

SUBORDINATED DEBT 

Any rating action on TFHC and TIB could trigger a similar move on their debt 
ratings, as the subordinated debt ratings are broadly sensitive to the same 
considerations that might affect TFHC and TIB. 

The rating actions are as follows: 

Taishin Financial Holding Co., Ltd.

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'

Subordinated debt rating affirmed at 'BBB+(twn)'

Taishin International Bank

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

Short-Term IDR affirmed at 'F2'

National Long-Term Rating affirmed at 'AA-(twn)'; Outlook Stable

National Short-Term Rating affirmed at 'F1+(twn)'

Viability Rating affirmed at 'bbb+'

Support Rating affirmed at '3'

Support Rating Floor affirmed at 'BB+'

Subordinated debt rating affirmed at 'A+(twn)'

Taishin Securities Co., Ltd.

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)'

Contact:

Primary Analyst 

Jenifer Chou, CFA, FRM 

Director

+886 2 8175 7605

Fitch Australia Pty Ltd, Taiwan Branch

Suite 1306, 13F, 205, Tunhwa North. Rd., Taipei City

Secondary Analyst

Sophia Chen, CFA, CPA

Director

+886 2 8175 7604

Committee Chairperson 

Parson Singha

Senior Director

+66 2108 0151

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. 15 Jul 2016)

https://www.fitchratings.com/site/re/884135

Global Non-Bank Financial Institutions Rating Criteria (pub. 15 Jul 2016)

https://www.fitchratings.com/site/re/884128

National Scale Ratings Criteria (pub. 30 Oct 2013)

https://www.fitchratings.com/site/re/720082

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_id=1011961

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

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