Hong Kong, November 23, 2018 -- Moody's Investors Service has affirmed CTBC Bank Co.,
Ltd.'s (CTBC Bank) deposit ratings at A2/P-1,
and CTBC Financial Holding Co., Ltd.'s (CTBC
Financial Holding) issuer rating at Baa1. Moody's has also
affirmed CTBC Bank's Baseline Credit Assessment (BCA) and adjusted
BCA at baa2, Counterparty Risk Assessment (CR Assessment) at A1(cr)/P-1(cr),
and Counterparty Risk Rating (CRR) at A1/P-1.
The outlooks on CTBC Bank and CTBC Financial Holding are both Stable.
RATINGS RATIONALE
The affirmation of CTBC Bank's baa2 BCA takes into account the bank's
good liquidity profile, improving asset quality metrics, above
peer-average profitability, and sound capitalization.
The BCA also takes into account potential risks related to the bank's
expansion in overseas markets such as China and Southeast Asia.
The bank's A2 deposit rating incorporates our expectation of a very high
likelihood of government support in times of need.
CTBC Bank's asset-quality metrics improved moderately in
2017 and first half 2018, with the impaired loan ratio falling to
1.4% by end-June 2018 from 1.5% at
end-2017 and 1.7% at end-2016. We expect
the bank's problem loan ratio to either remain stable or improve
modestly over the next 12-18 months amid steady economic growth.
CTBC Bank has sizable operations in overseas markets, with subsidiaries
in Japan, the United States, Indonesia, and Philippines.
The bank's loan growth has been modest in recent years, growing
by low to mid-single digits in 2016 and 2017. We expect
a moderate uptick in the bank's growth to mid to high-single
digits in 2018.
CTBC Bank has above-average capitalization among the rated Taiwanese
banks, with tangible common equity (TCE)-to-risk weighted
assets (RWA) ratio of 11.9% at end-June 2018,
down slightly from 12.2% at end-2017. The
bank's capital ratio will likely decline modestly in the coming
12 months on the back of a pick-up in its loan growth.
CTBC Bank has better profitability compared with its domestic peers.
The bank's return on average assets was 0.84% in the first
half of 2018, little changed from 0.83% in 2017.
We expect the bank to maintain good profitability in the rest of 2018
and 2019. Wider margins for overseas lending helps the bank maintain
above peer average net interest margins. We expect the bank's
margins to widen modestly over the next 12-18 months as the US
Federal Reserve raises policy interest rates.
CTBC Bank retains sound liquidity profile with little reliance on wholesale
funding, with wholesale funding amounting to 6.4%
of tangible banking assets at end-June 2018. The bank maintained
a conservative loan-to-deposit ratio of 75% as of
June 2018.
Moody's does not incorporate any affiliate support in CTBC Bank's
ratings, and the bank's Adjusted BCA has been affirmed at
baa2. Moody's follows the basic loss-given-failure
framework to assess CTBC Bank's liabilities, and the Preliminary
Rating Assessment (PRA) on the bank's deposits is at the same level
as its BCA and Adjusted BCA at baa2. The PRA for the bank's CRR
and CR Assessment are baa1/baa1(cr).
Moody's incorporates three notches of government support uplift
into CTBC Bank's A2 deposit ratings, A1 CRR and A1(cr) CR
Assessment. The three notches of government support takes into
account the bank's high market share and its systemic importance.
At end of end-June 2018, CTBC Financial Holding's double
leverage ratio was 126%. CTBC Financial Holding's
Baa1 issuer rating, which is two notches below CTBC Bank's
A2 deposit rating, takes into account the financial profile of its
sizable subsidiaries CTBC Bank and Taiwan Life Insurance Co.,
Ltd., structural subordination of the holding company's liabilities
relative to those of its operating subsidiaries, and the holding
company's high double leverage ratio. It also takes into
account potential government support for CTBC Bank.
CTBC Financial Holding issued TWD20 billion in preferred shares in December
2017. The dividends are deferrable and non-cumulative,
and the dividends are mandatorily deferrable if the company does not report
accounting profits in a fiscal year. The perpetual preferred shares
can partially absorb losses through interest deferrals under stress conditions,
and partially mitigates Moody's concerns over CTBC Financial Holding's
high double leverage.
Factors that could lead to an upgrade/downgrade for CTBC Bank
CTBC Bank's rating could be upgraded if its asset quality improves,
with an impaired loan ratio falling below 1%, or if the bank's
capitalization improves materially, with TCE / RWA ratio rising
above 12.5%.
CTBC Bank's rating could be downgraded if its (1) profitability
deteriorates, with net income falling below 0.6% of
tangible assets; (2) capitalization weakens, with its TCE falling
below 9% of RWA; or (3) asset quality deteriorates,
with its impaired loan ratio exceeding 3%.
The bank's rating could also be downgraded if its capitalization
weakens owing to debt-financed acquisitions.
Factors that could lead to an upgrade/downgrade for CTBC Financial Holding
CTBC Financial Holding's ratings could be upgraded if the financial
profiles of its main banking and insurance subsidiaries improve,
and the company reduces its double leverage.
The company's ratings could be downgraded if (1) CTBC Bank's rating
is downgraded, (2) its double leverage ratio increases materially,
or (3) the credit profile of Taiwan Life deteriorates materially.
The principal methodology used in these ratings was Banks published in
August 2018. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
CTBC Bank, headquartered in Taipei, reported total assets
of TWD3.9 trillion ($126 billion) as of 30 June 2018.
CTBC Financial Holding, domiciled in Taipei, reported total
assets of TWD5.5 trillion ($182 billion) as of 30 June 2018.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
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if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
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Regulatory disclosures contained in this press release apply to the credit
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Please see www.moodys.com for any updates on changes to
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for additional regulatory disclosures for each credit rating.
The first name below is the lead rating analyst for this Credit Rating
and the last name below is the person primarily responsible for approving
this Credit Rating.
Sonny Hsu, CFA
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Minyan Liu
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
