Hong Kong, April 06, 2016 -- Moody's Investors Service has affirmed the ratings of CTBC Financial
Holding Co., Ltd.'s issuer rating at Baa1,
and CTBC Bank Co., Ltd.'s deposit ratings at
A2/P-1. At the same time, Moody's has affirmed
CTBC Bank's baseline credit assessment (BCA) and adjusted BCA at
baa2, and counterparty risk assessment (CR assessment) at A1(cr)/P-1(cr).
The outlook on the bank and the holding company's ratings is stable.
The affirmation of CTBC Financial and CTBC Bank's ratings follows
CTBC Bank's signing of a memorandum of understanding with Thailand's
LH Financial Group Public Company Limited (unrated). CTBC Bank
has agreed to purchase THB16.6 billion of LH Financial's
newly issued shares, following which CTBC Bank will have equal ownership
in LH Financial as the latter's current largest shareholder at 35.6%.
CTBC Bank expects to sign the share subscription agreement with LH Financial
in May. The transaction will be subject to regulatory approvals
by authorities in Taiwan and Thailand, and is expected to close
by the end of September.
RATINGS RATIONALE
The affirmation of CTBC Financial and CTBC Bank' ratings takes into
account Moody's expectation that CTBC Bank will retain adequate
capitalization despite the drag from its purchase of newly issued LH Financial
shares. The transaction consideration amounts to roughly 70bps
of CTBC Bank's risk weighted assets at end-2015. In
Moody's opinion, CTBC Bank will retain an overall financial
profile consistent with its current baa2 BCA even allowing for a 70bps
decline in its capitalization ratios upon the completion of the transaction.
Even though CTBC Bank's financial metrics will remain consistent
with its current ratings following the proposed transaction, the
bank and its parent's numerous acquisitions since 2014 raise concerns
that they will stretch the group's finances and management resources.
The bank purchased Japan's Tokyo Star Bank (unrated) in 2014,
while the financial holding company acquired Taiwan Life Insurance Co.
Ltd. (unrated) in 2015. Further acquisitions by the bank
or the financial holding company may stretch the bank and the group's
financial profile and management resources and weigh on their ratings.
Beyond the impact on CTBC Bank's capitalization, Moody's
does not expect the transaction to weigh materially on CTBC Bank's
own asset quality and liquidity profiles. The investment in LH
Financial will likely be modestly negative in term of profitability for
CTBC Bank, as the target's return on assets is lower than
that of CTBC Bank, and given the 1.67x book multiple for
the transaction.
CTBC Bank's purchase of LH Financial's shares will not directly
impact the parent CTBC Financial's balance sheet leverage.
The company reported a double leverage ratio of 112.8% at
end-2015. CTBC Financial's issuer rating was downgraded
by one notch to Baa1 in October 2015 following the completion of its acquisition
of Taiwan Life Insurance Co., Ltd.
What Could Change the Rating -- Up/Down
CTBC Bank's rating could be upgraded if its tangible common equity
/ RWA ratio improved to above 11%, and asset quality improves
with an impaired loan ratio falling below 1%.
CTBC Bank's ratings could be downgraded if its profitability deteriorates
with net income falling below 0.5% of tangible assets,
capitalization weakens with its tangible common equity falling below 8%
of risk weighted assets, or asset quality deteriorates with its
impaired loan ratio exceeds 3%. The bank's ratings
could also be downgraded if the bank's capitalization weakens due
to debt-financed acquisitions.
CTBC Financial's issuer ratings could be upgraded if the financial profiles
of its main banking and insurance subsidiaries improve, and the
company maintains a modest double leverage.
CTBC Financial's rating could be downgraded if CTBC Bank's ratings are
downgraded, its double leverage ratio increases to over 115%
owing to debt-funded acquisitions, or the credit profile
of its insurance company deteriorates materially.
The principal methodology used in these ratings was Banks published in
January 2016. Please see the Ratings Methodologies page on www.moodys.com
for a copy of this methodology.
CTBC Financial Holding Co., Ltd. and CTBC Bank Co.,
Ltd. are headquartered in Taipei, Taiwan. The financial
holding company and the bank reported total assets of TWD4,596 billion
(approximately USD144 billion) and TWD3,519 billion (approximately
USD110 billion), respectively, at end-2015.
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.
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.
Sonny Hsu, CFA
Vice President - Senior 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 the ratings of CTBC Financial and CTBC Bank with stable outlook
