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Fitch Ratings-Taipei/Hong Kong/Singapore-31 October 2007: Fitch Ratings today revised the ratings of Chinatrust Group, namely Chinatrust Financial Holding Company (CFHC) and its subsidiaries Chinatrust Commercial Bank (CTCB), Chinatrust Bills Finance (CTBF) and Chinatrust Securities Co. (CTSC). The agency upgraded the Long-term foreign currency Issuer Default Rating (IDR), Short-term foreign currency IDR, National Long-term and Individual Rating of CFHC. The agency also upgraded all the ratings of CTSC, and downgraded the Individual Rating of CTBF. In addition, the rating Outlooks on CFHC, CTCB, CTBF and CTSC were revised to Stable from Negative, while the remainder of the ratings were affirmed.
The rating actions taken are as follows:
CFHC: Long-term foreign currency IDR upgraded to 'A' from 'A-' (A minus), Short-term foreign currency IDR upgraded to 'F1' from 'F2', National Long-term rating upgraded to 'AA+(twn) ' from 'AA(twn))', National Short-term rating affirmed at 'F1+(twn)', Individual rating upgraded to 'B' from 'B/C', Support rating affirmed at '5' and Support Rating Floor affirmed at 'N/F'.
CTCB: Long-term foreign currency IDR affirmed at 'A', Short-term foreign currency IDR affirmed at 'F1', National Long-term and Short-term ratings affirmed at 'AA+(twn)' and 'F1+(twn)' respectively, Individual rating affirmed at 'B', Support rating affirmed at '3' and Support Rating Floor affirmed at 'BB+'. CTCB's perpetual subordinated bond issue of March 2005 is also affirmed at 'A-' (A minus).
CTBF: Long-term foreign currency IDR affirmed at 'A-' (A minus), Short-term foreign currency IDR affirmed at 'F2', National Long-term and Short-term ratings affirmed at 'AA(twn)' and 'F1+(twn)' respectively, Individual rating downgraded to 'C' from 'B/C', and Support rating affirmed at '1'. CTBF's senior unsecured rating is also affirmed at 'AA(twn)'.
CTSC: Long-term foreign currency IDR upgraded to 'A-' (A minus) from 'BBB+', Short-term foreign currency IDR upgraded to 'F1' from 'F2', National Long-term rating upgraded to 'AA(twn)' from 'AA-(twn)' (AA minus (twn)), National Short-term rating upgraded to 'F1+(twn) ' from 'F1(twn)', Individual rating upgraded to 'C/D' from 'D' and Support rating upgraded to '1' from '2'.
The Outlook for all the ratings is Stable.
CFHC: The ratings of CFHC reflect its adequate capitalisation, low leverage, good liquidity position and recovering profitability. The group's stepped up efforts in upgrading its risk management has effectively reduced its credit risk profile. The holding company also had an ample cash position at end-H107 which sufficiently covered its short-term debt obligation. In addition, Fitch views that CFHC's plan to dispose its shareholding in Mega Financial Holding (MFH) should relieve the company's capital constraint and further improve its liquidity position, even though the regulator-forced disposal of MFH is a major setback in the group's mergers and acquisitions strategy. The share acquisitions of MFH were controversial due to alleged insider trading, which led to the departure of previous CTCB chairman Jeffrey Jr. Koo and several executives. Nonetheless, the group's institutionalised management system and strong management depth have effectively steered the group progressively forward through these crises in a professional manner. Therefore, Fitch considers positively the group's plan to bring in large strategic institutional partners and install independent directors in its 2008 board re-elections.
CTCB: The ratings of CTCB reflect its diversified business profile, improved risk management, and adequate capitalisation. Fitch believes that the bank's recovered profitability should bolster its internal capital accumulation. The agency also expects the bank's fee income growth to underpin its pre-provision profits throughout 2007, although its net interest income is weakened by slow loan growth and margin compression. The bank's asset quality improved in H107 after the bank's huge bad debt write-off for its unsecured lending in late 2006, such that CTCB was adequately capitalised at end-H107. However, the acquisition of Enterprise Bank of Hualien may lead to a substantially lower capital ratio for CTCB in H207 due to the substantial goodwill paid for the acquisition. Nevertheless, the expected capital support from CFHC and the bank's contingent plan to issue subordinated debts should maintain its capital at an adequate level. The bank's investments in SIV (Structured Investment Vehicle) are considered small relative to its equity base.
CTBF: The ratings of CTBF reflect the strong support from its parent company. Its Individual rating incorporates the company's weakened profitability as a result of the unfavourable yield curve, and its solid asset quality. CTBF's capital ratio, although adequate, declined notably due to the declining profitability and its continued dividend payouts in 2004-2006. However, the company has a good liquidity position at end-H107.
CTSC: The Long-Term and Short-Term Ratings of CTSC reflect the expected strong support from its parent CFHC. Its Individual rating, on the other hand, reflects its relatively small business scale and highly volatile profitability, as well as its low financial leverage. Its management system and risk control are fully integrated with the parent company. The company has a good liquidity position. Its current ratio was one of the highest among local securities companies. Fitch also notes that CTSC is well-capitalised and that its total CAR was far above the regulatory requirement and the industry average.
Contacts: Jonathan Lee, Renee Tsai, Taipei, +886 2 8175 7600; David Marshall, Hong Kong, +852 2263 9911.
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: Lisa Lim, Singapore, Tel: +65 6238 7301.
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