Hong Kong, December 11, 2020 -- Moody's Investors Service ("Moody's") has affirmed
CTBC Bank Co., Ltd.'s (CTBC Bank) long-term
local currency and foreign currency deposit ratings at A2 with a stable
outlook, and CTBC Financial Holding Co., Ltd.'s
(CTBC Financial Holding) foreign currency issuer rating at Baa1 with a
stable outlook.
Moody's has also affirmed CTBC Bank's Baseline Credit Assessment (BCA)
and adjusted BCA at baa2, local currency and foreign currency short-term
deposit ratings at P-1, Counterparty Risk Assessment (CR
Assessment) at A1(cr)/P-1(cr), and local currency and foreign
currency Counterparty Risk Ratings (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, sound asset quality, above-peer average
profitability and good capitalization. The BCA also takes into
account potential risks related to its expansion in markets outside of
Taiwan, such as mainland China and Southeast Asia. Moody's
expects the bank's asset quality and profitability to weaken moderately
due to the adverse economic conditions caused by the coronavirus pandemic.
The bank's A2 deposit ratings incorporate Moody's expectation of
a very high likelihood of government support in times of need.
CTBC Bank's asset quality deteriorated in the first six months of 2020,
with its impaired loan ratio rising to 1.6% as of the end
of June 2020 from 1.3% as of the end of 2019. Moody's
expects moderate economic growth to continue to weigh on the bank's problem
loan ratio in the first half of 2021.
CTBC Bank has sizable operations in the overseas markets. Its largest
overseas exposures are in Japan, where loan balances have been stable
in recent years because of weak credit demand. Moody's expects
the bank to report stronger credit growth in mainland China and Southeast
Asia over the medium term. Moody's considers credit risks
on loans to corporate borrowers in China and Southeast Asia to be higher
than loans to borrowers in Taiwan.
CTBC Bank maintains above-average capitalization among rated Taiwan
banks. However, its tangible common equity (TCE) to risk-weighted
assets (RWA) ratio fell modestly to 11.1% as of the end
of June 2020 from 11.7% as of the end of 2019 due to a large
dividend payout in the first half of the year. Nevertheless,
Moody's expects the bank to maintain its capitalization at the current
level in response to tightened regulatory capital requirements,
with the Financial Supervisory Commission designating CTBC Bank as one
of Taiwan's five domestic systemically important banks (D-SIBs)
in 2019.
CTBC Bank has better profitability than most of its Taiwanese peers.
Nevertheless, the bank's return on average assets fell to 0.6%
in H1 2020 from 0.8% in H1 2019 due to narrowing margins
and heightened credit costs. Moody's expects a lower US dollar
and Taiwanese policy interest rates to continue weighing on CTBC Bank's
margins in H2 2020 and H1 2021.
CTBC Bank has sound liquidity and little reliance on wholesale funding,
which amounted to 8% of tangible banking assets at the end of June
2020. The bank maintained a conservative loan-to-deposit
ratio of 73% as of the end of June 2020.
Moody's does not incorporate any affiliate support in CTBC Bank's ratings,
and follows the basic loss-given-failure framework to assess
the bank's liabilities. The Preliminary Rating Assessment
(PRA) on the bank's deposits is baa2, the same level as its BCA
and adjusted BCA. The PRA for the bank's CRRs and CR Assessment
is baa1/baa1(cr).
Moody's incorporates a three-notch uplift of support from the government
in CTBC Bank's A2 deposit ratings, A1 CRRs and A1(cr) CR Assessment,
taking into account the bank's large market share and its systemic importance.
At end of the end of June 2020, CTBC Financial Holding's double
leverage ratio was 127%. CTBC Financial Holding's Baa1 issuer
rating, which is two notches below CTBC Bank's A2 deposit rating,
takes into account the financial profiles of its sizable subsidiaries,
CTBC Bank and Taiwan Life Insurance Co., Ltd.;
the 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 has an outstanding issuance of TWD30 billion in
preferred shares as of the end of June 2020. The dividends are
deferrable and non-cumulative, and 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, which partially mitigate Moody's
concerns over CTBC Financial Holding's high double leverage.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Factors that could lead to an upgrade/downgrade for CTBC Bank
Moody's could upgrade CTBC Bank's deposit ratings if Taiwan's
government rating is upgraded. The bank's ratings could also
be upgraded if its BCA is upgraded, which could arise if its asset
quality improves, with its impaired loan ratio falling below 1.0%;
or if its capitalization improves materially, with its TCE/RWA ratio
rising above 13.0%.
CTBC Bank's deposit ratings may be downgraded if Taiwan's
government rating is downgraded. Moody's could also downgrade
the bank's rating if (1) its profitability deteriorates, with
its net income falling below 0.6% of tangible assets;
(2) its capitalization weakens, with its TCE falling below 9.0%
of RWA; or (3) its asset quality deteriorates, with its impaired
loan ratio exceeding 3.0%.
The bank's rating could also be downgraded if its capitalization
weakens because of a debt-financed acquisition.
Factors that could lead to an upgrade/downgrade for CTBC Financial Holding
Moody's could upgrade CTBC Financial Holding's issuer rating
if (1) Taiwan's government rating is upgraded; (2) there is
a material improvement in the financial profiles of its main banking and
insurance subsidiaries. The company's rating could also be
upgraded if there is a material reduction in the holding company's double
leverage.
Moody's could downgrade the company's rating if (1) Taiwan's
government rating is downgraded; CTBC Bank's rating is downgraded;
there is a sustained increase in the holding company's double leverage
ratio; or there is a material deterioration in Taiwan Life's
credit profile.
The principal methodology used in these ratings was Banks Methodology
published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147865.
Alternatively, 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 TWD4.3 trillion ($147 billion) as of 30 June 2020.
CTBC Financial Holding, domiciled in Taipei, reported total
assets of TWD6.4 trillion ($216 billion) as of 30 June 2020.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
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same series, category/class of debt, security or pursuant
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The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
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am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
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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
Sophia Lee, CFA
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
