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Fitch Ratings-Taipei/Hong Kong/Singapore-31 July 2008: Fitch Ratings has today affirmed the ratings of SinoPac Group, namely SinoPac Financial Holdings (SPH) and its subsidiaries - Bank SinoPac (BSP) and SinoPac Securities (SPS), as follows:
SPH: Long-term foreign currency Issuer Default Rating (IDR) 'BBB', Short-term foreign currency IDR 'F3', National Long-term rating 'A+(twn)', National Short-term rating 'F1(twn)', Individual 'B/C' and Support '5'. The Outlook remains Stable.
BSP: Long-term foreign currency IDR 'BBB+', Short-term foreign currency IDR 'F2', National Long-term rating 'AA-(twn)' (AA minus(twn)), National Short-term rating 'F1+(twn)', Individual 'B/C', Support '3' and Support Rating Floor 'BB+'. The Outlook remains Stable.
SPS: Long-term foreign currency IDR 'BBB', Short-term foreign currency IDR 'F3', National Long-term rating 'A+(twn)', National Short-term rating 'F1(twn)', Individual 'C' and Support '2'. The Outlook remains Stable.
The ratings of SPH reflect its limited leverage, sound capitalisation, and reasonably good asset quality.
Following the group's sizable write-downs on structured investment vehicles (SIVs) in 2007-Q108, SPH's top management changed in June 2008 comprising of a new chief executive and chairman, both of whom are experienced professionals. Fitch considers SPH's shareholder's delegation of authority to professional management as improving its corporate governance. The group also overhauled its risk control on its investment activities by tightening criteria on pre-investment decision-making and post-investment surveillance, a step which the agency believes should help rein in its investment risk.
Meanwhile, BSP's ratings reflect its reasonably good asset quality, adequate capitalisation and its improved risk management. The ratings also incorporate its relatively low profitability compared with its regional peers. BSP incurred losses in Q108 as the bank continued to write down its SIV exposures; its cumulated SIVs losses at end-March 2008 represented 84% of its original investment value (totaled USD350m). Although the SIV-related losses weighed on the bank's profitability in H108, BSP's profitability should gradually recover to a normalised level in H208. Fitch expects future SIV-related losses to be small and the bank's credit costs should continue to reduce after the aggressive write-offs in 2006 and 2007. Furthermore, BSP has good asset quality and it is adequately capitalised despite the losses related to SIVs. The bank also has a good liquidity profile and maintains an above industry average liquidity ratio.
On the other hand, the ratings of SPS primarily reflect its adequate capitalisation and limited leverage. Its Support rating takes into consideration the committed support from its sole parent, SPH; Fitch notes that SPS's risk control has been centralised at the financial holding company level. The securities company has a small investment portfolio relative to its equity base and hence a limited market exposure. SPS's CAR increased markedly at end-2007, attributable to stronger core capital owing from good profitability in 2007. However, its ROE fell in Q108, caused by losses in proprietary trading and underwriting amid market correction. As such, the agency expects SPS to deliver lower earnings in 2008 amid the heightened market volatility.
SPH, founded in 2002, is the ninth largest among the 14 domestic financial holding groups by asset size at end-2007. SPH provides diversified financial services through its 100%-owned subsidiaries BSP, SPS and SinoPac Card Services. Domestic conglomerate Yeun Foong Yu Group is the group's largest shareholder and controls six out of 12 board seats.
Contacts: Renee Tsai, Sophia Chen, Jonathan Lee, Taipei, +886 2 8175 7603.
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 6796 7214.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
