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Fitch Ratings-Taipei/Hong Kong-11 December 2009: Fitch Ratings has today affirmed Taiwan Cooperative Bank's (TCB) Long-term foreign currency Issuer Default Rating (IDR) at 'BBB+', Short-term foreign currency IDR at 'F2', National Long-term Rating at 'AA-(twn)', and National Short-term Rating at 'F1(twn)'. The Outlook is Stable. The agency has simultaneously affirmed TCB's other ratings as follows:
Individual rating at 'C/D';
Support rating at '2';
Support Rating Floor at 'BBB+';
Perpetual cumulative bonds at 'A(twn)'; and
Two subordinated bonds at 'A+(twn)'
TCB's IDRs are based the expectation that strong government support is forthcoming should the need arise, given its significant market position in the Taiwanese banking industry. TCB's Individual rating considers its strong liquidity profile and reasonable asset quality, which are offset by its less diversified revenue sources and lower Tier 1 capitalisation compared to other large state-controlled banks. TCB is the second largest lender in Taiwan after Bank of Taiwan ('AAA(twn)/Stable'). The bank was originally established to support grassroots financial institutions such as agricultural cooperatives and credit unions. Since its privatisation in 2005, the bank has been working to become more commercially driven. It signed a joint venture agreement with BNP Paribas group (BNP) to set up a life insurance company in January 2009, aimed at introducing a broader range of bancassurance products. Fitch views this strategic cooperation positively, as TCB can benefit from BNP's strong product origination as well as penetrate TCB's large customer base. In the long run, this can reduce the bank's reliance on loan-related business.
Despite the challenging operating environment, TCB was able to record a profit with an annualised return on equity (ROE) of 7.1% in 9M09, thanks to its large operating scale and well-contained bad loan losses. Fitch expects TCB to deliver steady profits in 2010, as improved net interest margin should offset the probably higher loan loss provision charges. TCB has adequate asset quality, evidenced by the reduced formations of new NPLs. Nevertheless, the bank's provision cover remained low at 59.4% of NPLs at end-Q309 (industry: 78.6%). Fitch notes that TCB's NPLs excluded restructured loans of some financially weak corporations, but believes the bank has the financial capacity to absorb potential credit losses. TCB's capitalisation is acceptable, with a Tier 1 ratio of 6.7% and CAR of 10.7% at end-Q309. Fitch expects the bank to maintain steady capitalisation, supported by stable earnings performance and modest asset growth. TCB has a sound liquidity profile, reflecting its leadership in setting the market prices.
Founded in 1946, TCB is a state-controlled bank with government ownership of 39%. The bank has the widest branch network in Taiwan, and operates 300 domestic branches and five foreign units.
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.
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