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Fitch Ratings-Taipei/Sydney-18 January 2012: Fitch Ratings has affirmed the ratings of Taiwan's Yuanta Financial Holding Co., Ltd. (YFH) and its subsidiaries, Yuanta Securities Co., Ltd. (YS, the principal subsidiary of YFH), Yuanta Securities Finance Co., Ltd. (YSF) and Yuanta Commercial Bank Co., Ltd (YCB). The Outlooks are Stable. The National Short-term Ratings of YFH, YS and YSF have been upgraded to 'F1+(twn)' from 'F1(twn)' to be more consistent with Fitch's criteria on Short-Term ratings.
At the same time, Fitch has withdrawn the Individual Ratings of YCB, YS and YFH, the Support Rating and Support Rating Floor of YS and YFH, and all ratings of YSF, as they are no longer considered by Fitch to be relevant to the agency's rating coverage. The agency will no longer provide ratings or analytical coverage of YSF. A full rating breakdown can be found at the end of this commentary.
The affirmations reflect the group's dominant market position in Taiwan's securities industry, resilient through-the-cycle earnings and favorable financial flexibility. The ratings also reflect the group's still small franchise among global investment banks, in spite of its latest acquisition of Polaris Securities (Polaris), a top-tier securities company in Taiwan in October 2011.
The group's financial flexibility has enabled it to undertake capital reallocation among its subsidiaries and exploit any merger & acquisition potential like Polaris. Acquisition of Polaris was funded by a combination of capital deduction at YSF, a share swap, new debt and earnings. As a result, the group's capitalisation has remained sound with a 139% capital adequacy ratio and a 112% double leverage ratio post acquisition.
The group's scale, strong market position in the securities industry and prudent risk management render it less vulnerable to capital market volatility. Both YS and Polaris outperform the peer average while YCB continues to show earnings momentum. Excluding one-off gains from its divestment in Kim Eng Holdings, the group's return on average equity would have been 6% annualised in 9M11, versus 7.2% in 2010, primarily due to a sluggish stock market. The Stable Outlooks are underpinned by its moderate risk appetite, potential synergies from the Polaris acquisition and Fitch's expectation that the group's growth strategy would not severely undermine financial flexibility.
Positive rating action for YFH and YS may arise from significantly improved and diversified earnings on a sustained basis. Negative rating action may result from a severely weakened capitalisation, a sharp increase in leverage arising from an aggressive growth strategy, including that at the banking subsidiary.
The Issuer Default and Long-term ratings of YCB reflect a strong probability of support from the group as evident from a series of recapitalisations at YCB in recent years. The bank's Viability Rating of 'bb+' reflects its moderate, albeit improved, core earnings, enhanced risk profile following a gradual clean-up of legacy problem loans and a largely revamped risk management system.
YCB returned to profitability since 2009 and posted a return on equity of 8.2% (annualised) in 9M11, which contributed over 10% of the group's earnings. Its non-performing loan (NPL) and coverage ratios were 0.52% and 242.9% respectively at end-Q311, providing more than sufficient cover for potential losses in NPLs, restructured loans and performing loans combined, and are in compliance with International Financial Reporting Standards. While its Tier 1 ratio is lower than that of its similarly rated peers, Fitch expects the group's excess capital to support the bank's continuing growth momentum and management Tier 1 target of 8%.
The Stable Outlook on YCB is aligned with that of YFH and YS, as its ratings are primarily driven by support from the latter two. The bank's Long-term Ratings accordingly move in tandem with those of YFH and YS. Consistent improvement in profitability and sound asset quality will benefit YCB's Viability Rating. Conversely, excessive growth and, consequently, sharply weakened capitalisation will weigh on its Viability Rating.
YFH is a mid-sized financial holding group in Taiwan. YFH continues to be one of the few securities-centric holding groups in Taiwan, versus mostly bank-centric local rivals. The group provides diversified financial services through its wholly-owned subsidiaries engaged in securities (YS & Polaris to merge in April 2012), securities finance (YSF), banking (YCB), investment trust, asset management and venture capital. YS & Polaris held a combined 14.7% market share in local stock brokerage in 9M11. YSF is the distant leader of the only two securities finance companies in Taiwan. YCB has 84 branches and a small deposit market share of 1.59% in Taiwan at end-September 2011.
A Credit Update on YS and YCB and a Credit Analysis on YFH will be published shortly on www.fitchratings.com.
The rating actions on YFH, YS, YSF and YCB are as follows:
YS:
Long-Term Foreign Currency IDR: affirmed at 'BBB+'; Stable Outlook
Short-Term Foreign Currency IDR: affirmed at 'F2'
National Long-Term rating: affirmed at 'AA-(twn)'; Stable Outlook
National Short-Term rating: upgraded to 'F1+(twn)' from 'F1(twn)'
Individual Rating: affirmed at'B/C'; withdrawn
Support Rating: affirmed at '5'; withdrawn
Support Rating Floor: affirmed at 'No Floor'; withdrawn
YCB
Long-Term Foreign Currency IDR: affirmed at 'BBB'; Stable Outlook
Short-Term Foreign Currency IDR: affirmed at 'F3'
National Long-Term rating: affirmed at 'A+(twn)'; Stable Outlook
National Short-Term rating: affirmed at 'F1(twn)'
Individual Rating: affirmed at 'C/D'; withdrawn
Viability Rating: affirmed at 'bb+'
Support Rating: affirmed at '2'
YFH:
Long-Term Foreign Currency IDR: affirmed at 'BBB+'; Stable Outlook
Short-Term Foreign Currency IDR; affirmed at 'F2'
National Long-Term rating: affirmed at 'AA-(twn)'; Stable Outlook
National Short-Term rating; upgraded to 'F1+(twn)' from 'F1(twn)'
Individual Rating: affirmed at 'C'; withdrawn
Support Rating: affirmed at '5'; withdrawn
Support Rating Floor: affirmed at 'No Floor'; withdrawn
Senior unsecured debt: affirmed at 'AA-(twn)'
YSF:
Long-Term Foreign Currency IDR: affirmed at 'BBB+'; Stable Outlook; withdrawn
Short-Term Foreign Currency IDR; affirmed at 'F2'; withdrawn
National Long-Term rating: affirmed at 'AA-(twn)'; Stable Outlook; withdrawn
National Short-Term rating; upgraded to 'F1+(twn)' from 'F1(twn)'; withdrawn
Individual Rating: affirmed at 'B/C'; withdrawn
Support Rating: affirmed at '5' withdrawn
Support Rating Floor: affirmed at 'No Floor'; withdrawn
Senior unsecured debt: affirmed at 'AA-(twn)'; withdrawn
Contacts:
Primary Analyst
Cherry Huang
Director,
+886 2 81757603
Suite 1306, 13F, Tun Hwa N. Rd., Taipei, Taiwan
Secondary Analyst
Sophia Chen
Associate Director
+886 2 8175 7604
Committee Chairperson
John Miles
Senior Director
61-2-8256 0344
Media Relations: Wai Lun Wan, Hong Kong, Tel: +852 2263 9935,
Email:
wailun.wan@fitchratings.com.
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.
Additional information is available at www.fitchratings.com. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable criteria, Bank Holding Companies, dated 16 August 2011, Global Financial Institutions Rating Criteria, dated 16 August 2011, and National Ratings Criteria, dated 19 January 2011, are available on www.fitchratings.com.
Applicable Criteria and Related Research:
Bank Holding Companies
Global Financial Institutions Rating Criteria
National Ratings Criteria
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