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Rating Action:

Moody's affirms E.SUN Commercial Bank and E.SUN Financial Holding's ratings; outlook remains stable

09 Dec 2020

Hong Kong, December 09, 2020 -- Moody's Investors Service has affirmed E.SUN Commercial Bank, Ltd.'s (E.SUN) long-term foreign currency deposit rating at A2 with a stable outlook.

At the same time, Moody's has affirmed E.SUN's Baseline Credit Assessment (BCA) and adjusted BCA at baa2, long-term foreign currency senior unsecured rating at A2 with a stable outlook, long-term and short-term foreign and local currency Counterparty Risk Ratings (CRRs) at A1/P-1, long-term and short-term Counterparty Risk Assessment (CR Assessment) at A1(cr)/P-1(cr) and short-term foreign currency deposit rating at P-1.

In addition, Moody's has affirmed E.SUN Financial Holding Company Limited's (E.SUN Financial) long-term foreign and local currency issuer ratings at A3 with a stable outlook, and short-term local currency issuer rating at P-2.

The outlook on both entities remains stable.

RATINGS RATIONALE

E.SUN Commercial Bank, Ltd.

The affirmation of E.SUN's BCA and Adjusted BCA reflects the bank's sound asset quality, robust liquidity, good profitability and adequate capitalization despite the challenges brought on by the coronavirus pandemic.

E.SUN has sound asset quality, with its impaired loan ratio at 0.7% as of the end of September 2020. Moody's expects the pressure on the bank's asset quality to be modest, underpinned by the bank's prudent risk management, well-diversified loan portfolio that's evenly split between corporate and retail lending, and Taiwan's gradual economic recovery.

E.SUN maintains robust liquidity with little reliance on market funds, which amounted to 5.6% of its tangible banking assets as of the end of September 2020. The bank is predominately funded by customer deposits and maintained a good liquidity coverage ratio of 118% in the first half of 2020.

E.SUN has good profitability despite the recent decline in return on average assets (RoAA) driven by lower net interest margins and higher credit costs. Its RoAA dropped to 0.7% in the first nine months of 2020 from 0.9% in the same period last year. The bank has a higher proportion of non-interest income compared to other rated Taiwanese banking peers, which partially mitigates the pressure on its profitability as net interest margin is likely to continue to narrow modestly. Its credit costs are likely to only slightly increase over the next 12-18 months as Taiwan's economy starts to recover.

Although E.SUN has adequate capitalization, its common equity tier 1 (CET1) ratio of 9.7% remains below the industry average of 10.6% as of the end of June 2020. This is because the bank's loan growth is consistently higher than the industry average, weighing on its capital adequacy. But Moody's expects E.SUN's CET1 ratio to remain steady, underpinned by its satisfactory internal capital generation.

Moody's does not incorporate affiliate support in E.SUN's baa2 Adjusted BCA. Moody's does not consider Taiwan as an Operational Resolution Regime. Therefore, Moody's applies a Basic Loss Given Failure (LGF) approach to rating Taiwanese banks' liabilities. Preliminary Rating Assessments (PRAs) on the bank's deposits and senior unsecured debt are at the same level as its Adjusted BCA of baa2. The PRAs for the bank's CRRs and CR Assessment are at baa1/baa1(cr), one notch above its Adjusted BCA.

E.SUN's A2 long-term deposit and senior unsecured ratings, A1 long-term CRRs and A1(cr) long-term CR Assessments incorporate Moody's expectation of very high likelihood of support from the Government of Taiwan (Aa3 stable), reflecting the bank's systemic importance in Taiwan with 5% market share in deposits and loans as of the end of September 2020.

E.SUN Financial Holding Company Limited

E.SUN Financial's A3 long-term issuer ratings take into account its PRA, which is one notch lower than E.SUN's A2 long-term deposit ratings, reflecting the structural subordination of the holding company's senior creditors to the bank's senior creditors under Moody's Basic LGF analysis. E.SUN accounted for 99% of the group's total assets as of the end of September 2020 and contributed to 93% of net profits in the first nine months of 2020. The ratings also reflect E.SUN Financial's low double-leverage ratio of 103% as of the end of September 2020.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

E.SUN's ratings could be upgraded if its BCA is upgraded with the bank (1) achieving a sustainable improvement in its profitability, with its return on average assets above 0.8%; (2) recording a sustainable improvement in its capitalization, with its TCE/RWA rising above 12%; and (3) maintaining its impaired loan ratio below 0.8% of gross loans. In addition, E.SUN's ratings could be upgraded if the government's rating is upgraded.

On the other hand, E.SUN's ratings could be downgraded if its BCA is downgraded with (1) its asset quality deteriorating with impaired loans rising above 2% of gross loans; (2) its capitalization declining materially, with its TCE/RWA falling to less than 8%; (3) its profitability declining significantly on a sustained basis, with its RoAA below 0.3%; or (4) its financial profile deteriorating due to its overly aggressive growth, either through acquisitions or organically in domestic or overseas markets.

E.SUN's ratings could also be downgraded if the government's capacity or willingness to support the bank weakens.

E.SUN Financial's issuer ratings could be upgraded if there is a significant improvement in the financial profile of E.SUN and the holding company maintains a stable double-leverage ratio.

On the other hand, E.SUN Financial's issuer ratings could be downgraded if (1) E.SUN's Adjusted BCA or deposit rating is downgraded; (2) there is a material deterioration in the credit profiles of other operating subsidiaries of the company; or (3) there is a substantial increase in the holding company's financial leverage, with its double-leverage ratio exceeding 115%.

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.

E.SUN Commercial Bank, Ltd. and E.SUN Financial Holding Company Limited are both headquartered in Taipei. At 30 September 2020, E.SUN reported total assets of TWD2.76 trillion (USD95 billion) while E.SUN Financial reported total assets of TWD2.78 trillion (USD96 billion).

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 debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Moody's considers a rated entity or its agent(s) to be participating when it maintains an overall relationship with Moody's. Unless noted in the Regulatory Disclosures as a Non-Participating Entity, the rated entities are participating and the rated entities or their agent(s) generally provide Moody's with information for the purposes of its ratings process. Please refer to www.moodys.com for the Regulatory Disclosures for each credit rating action under the ratings tab on the issuer/entity page and for details of Moody's Policy for Designating Non-Participating Rated Entities.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com 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.

Winnie Tang
Analyst
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

No Related Data.
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