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Rating Action:

Moody's affirms all ratings of E.Sun Bank and E.Sun Financial

 The document has been translated in other languages

03 Oct 2013

Hong Kong, October 03, 2013 -- Moody's Investors Service has affirmed the ratings of E.Sun Commercial Bank, Ltd. (E.Sun Bank).

The affected ratings are E.Sun Bank's standalone bank financial strength rating of D+, which is equivalent to a baseline credit assessment (BCA) of baa3 on the long-term scale, its Baa1 long-term foreign currency bank deposit rating, and its Prime-2 short-term foreign currency bank deposit ratings.

At the same time, Moody's has affirmed the Baa2 long-term local currency and foreign currency issuer ratings, and the Prime-2 short-term local currency issuer rating of E.Sun Financial Holding Company Limited (E.Sun Financial).

The rating outlook of all ratings is stable.

RATINGS RATIONALE

E.SUN BANK

"The affirmation of E.Sun Bank's BCA reflects our view that the bank continues to show the standalone credit characteristics of a bank rated at baa3," says Ginger Kao, a Moody's Analyst.

"The affirmation of its BCA reflects the bank's latest improvements in its profitability and capitalization, supplemented by its persistent asset quality resilience and well-diversified loan mix," adds Kao.

The deposit ratings also factor in Moody's assessment that the probability of support for the bank from the Taiwanese government (Aa3 stable) remains high, given the bank's good market position and our assessment that the Taiwanese government has history and a high willingness to support the banking industry given its importance to the economy. Consequently, the Baa1 rating includes an uplift of two notches from the bank's baa3 BCA.

The standalone baa3 BCA considers the bank's well-known and growing franchise and a prudent risk culture that has resulted in stable asset quality. Its sound liquidity, strong asset quality, and adequate capitalization also underpin the BCA with a loan-to-deposit ratio of 74.0%, an impaired loan ratio of 0.57% and a Tier 1 capital ratio of 8.5% at end-June 2013.

The bank's earnings have improved and we expect further gradual improvement, driven by a slight widening in its net interest margin, higher fee-based income and falling credit costs, continuing the trend of improvement seen between 2009 and 2012.

But, despite the improvement, its profitability is still relatively weak to its global peers, given the market's fragmented state, low interest rates and excessive liquidity.

In addition, E.Sun Bank's capitalization has more than recovered from its 2008 drop and hit new highs in 2011 and 2012, mainly through capital injections and earnings retention. Moody's believes that its improved capitalization has created a better loss absorption cushion, which helps it to withstand potential asset pressure. This is particularly important in the context of the bank's relatively weak profitability by global standards.

Nevertheless, the bank's Tier 1 capital ratio fell to 8.5% at end-June 2013, mainly reflecting the impact of a strong year-over-year loan growth of 13% in 1H 2013 versus the industry average of 4%, in addition to Taiwan's implementation of Basel III and international financial reporting standards (IFRS) in 2013.

Finally, like other Taiwanese peers, its rather high single-borrower concentration by global standards could pose a risk during economic down cycles.

While maintaining its asset quality at current levels, Moody's could upgrade the BCA if E.Sun Bank: (1) consistently improves its profitability, such that net income exceeds 1.3% of average risk weighted assets (RWA); (2) significantly reduces the concentration of its top 20 borrowers to below 750% of pre-provision income, and below 100% of Tier 1 capital; and/or (3) consistently maintains its Tier 1 capital ratio above 9%.

On the other hand, Moody's could lower the bank's BCA if it demonstrates: (1) an overly aggressive growth strategy, either through acquisitions or organic growth, that pressures its financial fundamentals and management resources; (2) a significant deterioration in profitability, with net income/average RWA below 0.6%; and/or (3) a reduction in its common equity Tier 1 capital ratio to below 7.5%.

E.SUN FINANCIAL

The affirmation of E.Sun Financial's Baa2 long-term and Prime-2 short-term issuer ratings reflect the good credit profile of the company's banking subsidiary, E.Sun Bank, and the group's modest financial fundamentals.

E.Sun Financial's ratings also incorporate Moody's expectation that the Taiwanese government will support financial holding groups, if needed, particularly those that are heavily engaged in the banking sector, which in turn is vital to the economy.

However, the ratings also take into account its limited business diversification outside the highly competitive banking sector of Taiwan.

E.Sun Bank accounted for 99% of the group's total assets and contributed 93% of net profits for 1H 2013. E.Sun Financial's ratings therefore largely reflect E.Sun Bank's overall performance.

Moody's would upgrade the rating following an upgrade of E.Sun Bank's ratings and/or enhanced franchise value and improved income diversity.

On the other hand, Moody's could downgrade the rating if (1) a deterioration in the financial metrics of E.Sun Bank and other operating subsidiaries occurred, and/or (2) substantial increases occurred in financial leverage -- for instance with double leverage in excess of 120% -- as a result of acquisitions or a more aggressive financial policy.

LIST OF RATINGS AFFIRMED

The following ratings all have a stable outlook.

E.Sun Bank:

- BFSR/BCA: D+/baa3

- Long-term foreign currency bank deposit ratings: Baa1

- Short-term foreign currency bank deposit ratings: P-2

E.Sun Financial:

- Long-term local currency and foreign currency issuer rating: Baa2

- Short-term local currency issuer rating: P-2

RATING METHODOLOGY

The principal methodology used in these ratings was Global Banks published in May 2013. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

E.Sun Bank and E.Sun Financial are both headquartered in Taipei. As of 30 June 2013, E. Sun Bank reported assets of TWD1.32 trillion, while E.Sun Financial reported consolidated assets of TWD1.33 trillion.

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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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.

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

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.

Ginger Kao
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
SUBSCRIBERS: (852) 3551-3077

Stephen Long
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (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
SUBSCRIBERS: (852) 3551-3077

Moody's affirms all ratings of E.Sun Bank and E.Sun Financial
No Related Data.
© 2020 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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