Fitch Revises Outlook on Taishin Holdco and Taishin Securities to Stable; Affirms Taishin Group

TS Financial Holding Co

05/09/2019 09:06

(The following statement was released by the rating agency)


Fitch Ratings-Shanghai/Taipei-September 05: Fitch Ratings has revised the 
Outlook on Taiwan-based Taishin Financial Holding Co., Ltd.'s (TFHC) and Taishin 
Securities Co., Ltd.'s (TSS) ratings to Stable from Negative. The Outlook on 
Taishin International Bank Co., Ltd. (TIB) remains Stable. The ratings of all 
three entities are affirmed. A full list of rating action is provided at the end 
of this commentary.

KEY RATING DRIVERS 

IDRS, NATIONAL RATINGS AND VIABILITY RATING

The Outlook revision on TFHC reflects our expectation that its common-equity 
double-leverage ratio (DLR) of 147% at end-1Q19 - or an estimated 117% excluding 
its investment in Chang Hwa Bank - is unlikely to rise significantly in absence 
of future M&A activities. We do not expect TFHC to make additional capital 
injections into TIB, as TIB has already strengthened its capitalisation to meet 
Basel III requirements. This should enable TFHC to keep its common-equity DLR 
stable. TFHC's Long-Term Issuer Default Rating (IDR) is affirmed at one notch 
below that of TIB to reflect TFHC's high common-equity DLR. 

The affirmation on TIB reflects the bank's well-established consumer-banking 
franchise, strong presence in digital banking, stable profitability and 
improving capitalisation, which support its solid financial profile. The bank 
has a strong presence in credit cards, wealth management and consumer loans 
thanks to its targeted customer acquisition and penetration strategy. It is also 
a leading player in digital banking, driven by the bank's commitment to fintech 
investments. This helps TIB expand its client base for further business 
opportunities and sustain its strong consumer franchise.  

We expect TIB to continue pursuing higher loan growth relative to the sector 
average in the next year or two, as it focuses on further growth in SME and 
mortgage loans. However, the bank's loan mix remains largely unchanged, with 
corporate and retail loans (mainly mortgages and home equity) making up 44% and 
56%, respectively, of total loans at end-1Q19; we expect the credit quality of 
its corporate-loan portfolio to stay stable, notwithstanding challenges from 
US-China trade tensions, which will also impact Taiwan's growth prospects. TIB's 
mortgage loan-to-value ratio remained consistently below 40% over 2015-1H19. Its 
impaired-loan ratio (based on Stage 3 under IFRS 9) was 1% at end-1Q19, in line 
with the peer average.

TIB's profitability should remain stable in 2019-2020, with its operating 
profit/risk-weighted assets ratio reaching around 1.1%, despite a slowing 
economy and heightened external uncertainties. This is likely to be driven by a 
pick-up in fee income from its expanding retail client base, enhanced wealth 
management product offerings and strengthened market position in overseas 
syndication loans. We believe credit costs will be contained, backed by the 
bank's focus on creditworthy borrowers and strict loan-to-value ratios on 
mortgages. 

We expect stable Fitch Core Capital ratio in 2019-2020, compared with 11.2% at 
end-2018, or about 12% if adjusted for Taiwan's higher capital charges for 
mortgages relative to other developed markets. This should be supported by 
stable profitability and a lower dividend payout to TFHC. TIB's capitalisation 
continued to strengthen and its common equity Tier 1 ratio reached 9.6% as of 
end-2018 (8.7% at end-2017), meeting Basel III standards plus a 200bp Pillar 2 
buffer for overseas expansion, as required by the local regulator. TIB has a 
stable liquidity profile, as it is funded mostly by customer deposits, and we 
expect it to continue to benefit from Taiwan's ample liquidity. Its liquidity 
coverage ratio remained healthy at 131% at end-2018, higher than that of most 
domestic peers. 

The ratings and Outlook on TSS are aligned with that of its parent, TFHC. This 
reflects its small size, making it easier for TFHC to provide support, together 
with obligatory support from TFHC under the framework of Taiwan's Financial 
Holding Company Act and high integration between TSS and the group.

SUPPORT RATING AND SUPPORT RATING FLOOR 

TIB's Support Rating and Support Rating Floor reflect a moderate probability of 
state support, if needed, in light of its moderate systemic importance, with a 
deposit market share of about 3%.

SUBORDINATED DEBT 

TIB's subordinated bonds are anchored from its National Long-Term Rating and are 
rated one notch below to reflect their subordinated status, the absence of a 
going-concern loss-absorption feature and limited loss severity. The bonds' 
ratings have thus been affirmed due to the affirmation of TIB.

RATING SENSITIVITIES

IDRS, NATIONAL RATINGS AND VIABILITY RATING

TIB's IDRs, National Ratings and Viability Rating are sensitive to changes in 
Fitch's assessment of its ability to maintain the strength of its 
consumer-banking franchise, which would also directly affect our assessment of 
its financial profile. Downward rating pressure may arise if there is a 
noticeable deterioration in TIB's profitability, which in turn would impair its 
ability to maintain sufficient capital buffers relative to its risk appetite.  

Significant changes in TIB's ratings would affect the ratings of TFHC and TSS to 
a similar extent. Notching between TFHC and TIB could widen to two notches if 
the common-equity DLR at TFHC deteriorates extensively, this is likely to be 
driven by M&A, which are opportunistic in nature and are not factored into our 
base case. Conversely, TFHC's ratings may be equalised with those of TIB if TFHC 
significantly increases its core capitalisation or reduces its common-equity DLR 
to consistently below 120%. This could be triggered by a final court ruling on 
the decade-long legal dispute on TFHC's control of Chang Hwa Bank. 

A widening of the notching between TFHC and TSS could arise from a significant 
change in TSS's size relative to that of its parent that limits TFHC's capacity 
to provide support.

SUPPORT RATING AND SUPPORT RATING FLOOR 

TIB's Support Rating and Support Rating Floor are sensitive to changes in 
assumptions around the propensity or ability of the Taiwan government to provide 
timely support.

SUBORDINATED DEBT 

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

The rating actions are as follows: 

TFHC 

Long-Term IDR affirmed at 'BBB'; Outlook revised to Stable from Negative 

Short-Term IDR affirmed at 'F3'

National Long-Term Rating affirmed at 'A+(twn)'; Outlook revised to Stable from 
Negative

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

Viability Rating affirmed at 'bbb'

TIB

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 (Basel II Tier 2 capital) debt rating affirmed at 'A+(twn)'

TSS

Long-Term IDR affirmed at 'BBB'; Outlook revised to Stable from Negative

Short-Term IDR affirmed at 'F3'

National Long-Term Rating affirmed at 'A+(twn)'; Outlook revised to Stable from 
Negative

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

Contact: 

Primary Analysts

Janet Lu (TIB and TFHC)

Associate Director

+886 2 8175 7613

Fitch Australia Pty Ltd, Taiwan Branch 

Suite 1306, 13F, 205, Tun Hwa North Road 

Taipei City, Taiwan

Rowena Chang (TSS)

Associate Director

+886 2 8175 7602

Secondary Analysts

Sophia Chen, CFA, CPA (TIB and TFHC)

Director

+886 2 8175 7604

Carol Liu (TSS)

Associate Director

+86 21 6898 8001

Committee Chairpersons 

Parson Singha, CFA (TIB, TFHC)

Senior Director

+662 108 0151

Mark Young (TSS)

Managing Director

+44 20 3530 1318

ESG CONSIDERATIONS

Unless otherwise disclosed in this section, the highest level of ESG credit 
relevance is a score of 3 - ESG issues are credit neutral or have only a minimal 
credit impact on the entity, either due to their nature or the way in which they 
are being managed by the entity. 

TIB has an ESG Relevance Score of 4 for Group Structure due to its parent TFHC's 
ongoing legal dispute with the Taiwan government over the control of Chang Hwa 
Bank that affects the group's strategic planning, which has a negative impact on 
the credit profile, and is relevant to the rating in conjunction with other 
factors. For more information on our ESG Relevance Scores, visit 
www.fitchratings.com/esg

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.

Media Relations: Yee Man Ko, Hong Kong, Tel: +852 2263 9953, Email: 
alanis.ko@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 

Bank Rating Criteria (pub. 12 Oct 2018)

https://www.fitchratings.com/site/re/10044408

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

Short-Term Ratings Criteria (pub. 02 May 2019)

https://www.fitchratings.com/site/re/10073011

Additional Disclosures 

Dodd-Frank Rating Information Disclosure Form 

https://www.fitchratings.com/site/dodd-frank-disclosure/10088386

Solicitation Status 

https://www.fitchratings.com/site/pr/10088386#solicitation

Endorsement Policy 

https://www.fitchratings.com/regulatory

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