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Rating Action:

Moody's affirms all ratings of Mega Bank and Mega Financial

 The document has been translated in other languages

05 Feb 2013

Hong Kong, February 05, 2013 -- Moody's Investors Service has affirmed the ratings of Mega International Commercial Bank Co., Ltd. (Mega Bank).

The affected ratings are its A1 long-term local currency and foreign currency bank deposit ratings, and its Prime-1 short-term local currency and foreign currency bank deposit ratings.

At the same time, Moody's has affirmed the A3 long-term foreign currency issuer rating of Mega Financial Holding Co., Ltd. (Mega Financial).

The outlook for all ratings is stable.

The rating action does not affect the A3 insurance financial strength rating with a stable outlook of Chung Kuo Insurance Co., Ltd. (Chung Kuo Insurance), the property and casualty insurance subsidiary of Mega Financial.

RATINGS RATIONALE

MEGA BANK

"The A1 long-term deposit ratings of Mega Bank are underpinned by its standalone bank financial strength rating (BFSR) of C-, which maps to a baseline credit assessment (BCA) of baa2 on the long-term scale," says Ginger Kao, a Moody's Analyst.

"The ratings also factor in Moody's assessment that the probability of support for the bank from the Taiwanese government (Aa3 stable) is very high, given the latter's around 20% effective interest in the institution and the bank's strong market position," adds Kao. "Consequently, the A1 ratings include an uplift of four notches from the bank's baa2 BCA."

Mega Bank's standalone strength considers its strong franchise in corporate banking, particularly in private enterprise loans, overseas lending, and foreign currency deposits. The ratings are also supported by the bank's solid level of capital adequacy, healthy asset quality, and satisfactory liquidity profile. It had a Tier 1 ratio of 9.64%, impaired loan ratio of 1.48%, and loan-to-deposit ratio of 93.7% at end-September 2012.

However, Mega Bank's two main weaknesses -- its weak profitability and high level of borrower concentration when compared to its global peers -- undermine its credit profile.

Although earnings have improved consistently over the past two years, the market's fragmented state, low interest rates and excessive liquidity still weigh on the bank's profitability.

Moreover, Mega Bank's high level of single-borrower concentration remains a key credit concern because it could cause volatility in its earnings and asset quality, and because its cushion against unexpected shocks is thin.

Since the rating already incorporates four notches of systemic support, the possibility of upward pressure is remote. However, Moody's could upgrade the BCA if Mega Bank: (1) consistently improves its profitability, such that net income exceeds 1.0% of average risk weighted assets (RWA) and pre-provision income exceeds 1.5% of average RWA; (2) significantly reduces the concentration of its top 20 borrowers to below 750% of pre-provision income, and below 150% of Tier 1 capital; and/or (3) maintains its asset quality at current levels, while enhancing its Tier 1 capital ratio to above 10%.

On the other hand, Moody's could downgrade the bank's ratings if: (1) its asset quality deteriorates significantly, such that its impaired loan ratio (as defined by IFRS) exceeds 3.5%; (2) its profit declines materially, such that net income -- as a percentage of average RWA -- falls below 0.5%; and/or (3) its capital adequacy weakens, such that its common equity Tier 1 capital ratio falls below 8.5%; and/or (4) there is any reduction in the government's stake or control over the bank.

MEGA FINANCIAL

The affirmation of Mega Financial's A3 long-term issuer rating reflects the solid credit profile of Mega Bank; Mega Financial's own reasonable level of leverage; the satisfactory capital adequacy and liquidity levels evident at its major subsidiaries, including Mega Bank, Chung Kuo Insurance, Mega Bills Finance Co., Ltd.(unrated) and Mega Securities Co., Ltd. (unrated).

Mega Financial's rating also incorporates Moody's expectation that the Taiwanese government will provide regulatory support to the group, whose operations are predominantly in banking.

However, Mega Financial's strengths are adversely affected by the volatile state of earnings at Mega Securities Co., Ltd. and the weak state of profitability at Chung Kuo Insurance.

Moody's would upgrade the rating following an upgrade of Mega Bank's ratings and/or a substantial improvement in the profitability of its other non-banking subsidiaries.

On the other hand, Moody's could downgrade the rating if: (1) a downgrade of Mega Bank's ratings occurs; (2) any aggressive acquisition or growth plan materializes, and which could pressure its financial profile, such that its double leverage exceeds 120%; and/or (3) a considerable weakening becomes apparent in the financial fundamentals of its subsidiaries.

LIST OF RATINGS AFFIRMED

The following ratings all have a stable outlook.

Mega Bank:

- BFSR/BCA: C-/baa2

- Long-term local currency and foreign currency bank deposit ratings: A1

- Short-term local currency and foreign currency bank deposit ratings: P-1

Mega Financial:

- Long-term foreign currency issuer rating: A3

RATING METHODOLOGY

The principal methodology used in this rating was Moody's Consolidated Global Bank Rating Methodology published in June 2012. Please see the Credit Policy page on www.moodys.com for a copy of the methodology.

Mega International Commercial Bank Co., Ltd. and Mega Financial Holding Co., Ltd. are headquartered in Taipei. As of 30 September 2012, the unconsolidated assets of Mega Bank stood at TWD2,244 billion (USD77 billion), and the consolidated assets of Mega Financial totaled TWD2,522 billion (USD86 billion).

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.

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 Mega Bank and Mega Financial
No Related Data.
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