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Fitch Ratings-Taipei/Hong Kong/Singapore-14 October 2009: Fitch Ratings has today affirmed Chang Hwa Bank's (CHB) Long-term foreign currency Issuer Default Rating (IDR) at 'BBB+', Short-term foreign currency IDR at 'F2', National Long-term rating at 'AA-(twn)', National Short-term rating at 'F1(twn)', Individual rating at 'C/D', Support rating at '2' and Support Rating Floor at 'BBB+'. The Outlook is Stable.
CHB's Long-term ratings are underpinned by strong government support, given its significant market position and legacy of state ownership. CHB's Individual rating mainly reflects its adequate capitalisation and asset quality, and good liquidity, while its weak core profitability is the main offsetting factor.
CHB continues to be managed independently in spite of Taishin Financial Holdings Company's (TFHC) dominant stake since October 2005. Fitch notes that uncertainty about a possible merger between CHB and TFHC has increased due to opposition from CHB's minority shareholders and that the government, CHB's second-largest shareholder, still exerts significant influence over the merger and the bank's management.
CHB's profitability slowed further in H109 amid the severe economic recession. The agency expects CHB's bottom-line profits as likely to remain under pressure in 2009-2010 as weak economic growth persists. CHB's NPL ratio remained stable at 1.7% at end-H109 and loan loss reserve covered 75.2% of problem exposures. Although the problem loans excluded the restructured debts of some financially weak corporations, Fitch believes the bank is financially equipped to absorb the potential credit risk.
CHB's liquidity remains strong. It has a strong deposit-gathering franchise and has been acting as a major liquidity provider in Taiwan's interbank markets. CHB is adequately capitalised, with a Tier 1 ratio of 7.1% and a total capital ratio of 10.1% at end-H109. It intends to keep its Tier 1 and capital adequacy ratios above 7% and 10%, respectively.
CHB is one of the major state-affiliated money-centre commercial banks in Taiwan. TFHC is CHB's largest shareholder with a 22.55% stake and appointed the majority of its board of directors.
Contacts: Sophia Chen, Stephanie Liu, Jonathan Lee, Taipei, +886 2 8175 7600.
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: Karen Cho, Hong Kong, Tel: +852 2263 9935,
Email:
karen.cho@fitchratings.com.
