TAISHIN FINANCIAL HOLDING CO., LTD.
Fitch Ratings has affirmed the Long-Term Issuer Default Rating (IDR) of
Fitch has also affirmed the Long-Term IDRs of subsidiaries,
The agency has also upgraded TIB's Government Support Rating (GSR) to 'bbb-', from 'bb+', following a re-assessment of the government's propensity and ability to support large banks in the financial system. We believe the government's propensity to support TIB has increased, considering the company's moderate systemic importance and the authorities' aim to maintain financial system stability. We do not believe that the government's ability to support TIB is substantially constrained by the presence of government banks in the system.
Key Rating Drivers
TIB
Driven by Intrinsic Profile: TIB's Long-Term IDR is driven by its Viability Rating, which is in line with the implied Viability Rating. The Stable Outlook reflects Fitch's expectation that the bank will maintain a competitive niche in consumer and digital banking among domestic peers, as well as consistent risk management, an adequate loss-absorption buffer, and a sound liquidity profile. The rating is also underpinned by
Baseline Short-Term Rating: TIB's Short-Term IDR of 'F2' is at the baseline option that maps to its Long-Term IDR, as its funding and liquidity score of 'a-' does not meet the minimum 'a' score to achieve a higher rating.
Stable Operating Environment: The operating environment score of 'a' with a stable outlook considers that
Established Consumer-Banking Franchise: TIB's established consumer-banking franchise is supported by its strong market position in credit cards, wealth management and consumer lending. We believe TIB's fintech investments will help expand its client base and sustain its consumer franchise. TIB has a leading position in digital banking in
Steady Risk Profile: TIB's risk profile score of 'bbb+' considers that its underwriting standards and borrower concentration are in line with the domestic peer average. Yet, borrower concentration is higher than at other large
TIB is also focused on post-lending management and conducts periodic monitoring of corporate loan borrowers.
Stable Asset Quality: TIB's 'a-' asset quality score reflects the bank's broadly steady asset-quality performance over the years, despite a high growth appetite, supported by stringent customer selection and consistent collateralisation policy on secured loans. We expect the impaired-loan ratio in 2023-2024 to only rise modestly from 1.1% at end-9M22, as TIB has only a small exposure to relief loans. Most of its relief loans are for the government's guaranteed labour relief loan programme and deferred repayment for mortgage loans.
Improving Profitability: We expect profitability to improve modestly in 2023, benefiting from a moderate increase in net interest margins amid rising market interest rates and a recovery in wealth management fees. This should offset a potential increase in loan provision charges due to moderating economic growth. The bank's net profit declined by 8% yoy in 9M22 due to rising credit costs (from a low base in 9M21) and lower fee and investment income, despite higher net interest income.
Adequate Capitalisation: We expect TIB to sustain its common equity Tier 1 (CET1) ratio at around 10.5%-11.0% in 2023-2024, as the bank focuses on risk-adjusted capital returns. The ratio fell to 10.3% by end-1H22, from 10.7% at end-2021, due to a cash dividend distribution to the holding parent in
Stable Funding and Liquidity: TIB's loan/customer-deposit ratio remained stable at 82% at end-9M22, in line with its historical level of around 85%. Around 88% of TIB's funding is from customer deposits, which supports its stable funding and liquidity profile.
TFHC
TFHC's regulatory DLR of 111% at
Manageable Double Leverage Ratio: The Stable Outlook on TFHC reflects Fitch's expectation that pressure on its common-equity DLR over 2023-2024 should ease, as we do not expect any major capital injection plan for subsidiaries.
Potential Merger with
Steady Recurring Profitability: Steady loan growth, a modest increase in net interest margins amid rising market interest rates, as well as a recovery in wealth management fees and well-contained credit costs should support stable recurrent profitability for TIB, and hence the group, in 2023. TFHC's underlying net profit declined by 12% yoy in 9M22, due to lower fees and investment income at TIB and TSS. The decline in TFHC's reported net profit in 9M22 is higher, at 54% yoy, due to major one-off items in 2021 and 2022.
Rating Sensitivities
Factors that could, individually or collectively, lead to negative rating action/downgrade:
IDRS AND VIABILITY RATINGS
TIB
TIB's ratings could be downgraded if its consumer-banking franchise notably weakens or if it significantly increases its growth appetite and compromises its underwriting standards, leading to severe deterioration in asset quality, profitability or capitalisation. For example, its Viability Rating could be downgraded if its impaired ratio were to approach 3.0% (end-9M22: 1.1%) or if its operating profit/risk-weighted assets ratio were to drop towards 0.8% (1H22 annualised: 1.1%).
TFHC
TFHC's IDRs could be downgraded if TIB's IDRs are downgraded due to the strong linkage between the two entities.
TFHC could also be downgraded if its common-equity DLR rises above 150%, possibly due to significantly higher capital needs from its subsidiary,
SHORT-TERM IDR
The Short-Term IDR of TIB would be downgraded if TIB's Viability Rating is downgraded and its funding and liquidity score is lowered to below 'bbb+'. The Short-Term IDR of TFHC and TSS will not be downgraded unless their Long-Term IDRs are downgraded to 'BB+' or below.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
IDRS AND VIABILITY RATINGS
TIB
An upgrade is unlikely in the medium term, unless the bank can significantly strengthen its overall banking franchise and risk profile, while demonstrating a sustained and notable improvement in profitability. For example, if its operating profit/risk-weighted assets ratio were to rise towards 2.0% (four-year average of 2019-1H22: 1.1%) or its CET1 ratio were to rise towards 14%, against 10.3% at end-1H22.
TFHC
Any positive rating actions on TIB's ratings will affect the ratings of TFHC to a similar extent. An upgrade to TFHC's IDR could materialise if it significantly increases its core capitalisation or reduces its common-equity DLR consistently to below 120%.
SHORT-TERM IDR
The Short-Term IDR of TFHC and TSS could be upgraded if TIB's Short-Term IDR is upgraded. This could occur if TIB's funding and liquidity score is revised to 'a' or above, though we view this as unlikely given its moderate franchise.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
NATIONAL RATINGS
The National Long-Term Ratings of TIB, TFHC and TSS are at the high-end of the rating scale, reflecting low default risk relative to domestic peers. The affirmation of the National Ratings reflects that there is no change in Fitch's view of the entities' credit profiles relative to the rated universe of issuers in
High Government Support: TIB's GSR reflects a high probability of government support, if needed, given its moderate systemic importance, with a deposit market share of about 4%.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
NATIONAL RATINGS
Factors that could, individually or collectively, lead to negative rating action/downgrade:
A downgrade of TIB's, TSS's and TFHC's National Ratings would arise from a weakening in their overall credit profiles on a relative basis to the national-rating universe.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Changes in Fitch's perception of TIB's, TSS's and TFHC's credit profiles relative to the national-rating universe could affect their National Ratings. Strengthening in their overall credit profile on a relative basis to the national-rating universe could lead to an upgrade of their National Ratings.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
TIB's GSR could be downgraded if Fitch believes TIB's perceived systemic importance had weakened.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Upside could be possible if TIB's systemic importance increases significantly, such as due to a merger or acquisition.
SUBSIDIARIES & AFFILIATES: KEY RATING DRIVERS
Support-Driven IDR: TSS' IDRs are solely driven by the company's Shareholder Support Rating (SSR), which is equalised with TFHC's IDR, reflecting Fitch's belief that there would be a huge reputational risk to TFHC if TSS were to default, given the strong linkages between TSS and the group. TSS is fully owned and controlled by TFHC, and its operational activities are supported by the group's client base and network. The rating also reflects TSS's small size relative to TFHC's ability to provide obliged support under
SUBSIDIARIES AND AFFILIATES: RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade
IDRS
Any negative rating action in TSS's SSR would lead to similar rating action at its Long-Term IDR.
SSR
Any negative rating action at TFHC would reflect a change in support ability, and lead to similar rating action on TSS.
A decline in the group's propensity to support TSS would also lead to negative rating action. This may be indicated by signs of weakening integration, branding linkages and control, or Fitch's perception of a reduced strategic importance of TSS to its parent. However, Fitch believes a change in support propensity is not likely in the near term.
Factors that could, individually or collectively, lead to positive rating action/upgrade
IDRS
The Long-Term IDR of TSS is linked to its SSR.
SSR
There could be positive rating action on TSS's SSR if there was similar rating action on TFHC's Long-Term IDR.
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Public Ratings with Credit Linkage to other ratings
TFHC's Long-Term IDR is linked to that of TIB. TSS's ratings are linked to those of TFHC.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means 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. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
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