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Rating Action:

Moody's announces bank rating actions for Taiwan resulting from implementation of JDA and BFSR methodologies

04 May 2007
Moody's announces bank rating actions for Taiwan resulting from implementation of JDA and BFSR methodologies

New York, May 04, 2007 -- Moody's Investors Service today published the rating results for banks in Taiwan as part of the application of its refined joint default analysis (JDA) and updated bank financial strength rating (BFSR) methodologies.

BFSRs evaluate the stand-alone or intrinsic financial strength of banks without reference to external support factors. BFSRs are the starting point of Moody's bank credit analysis, and are an important determinant of Moody's bank deposit and debt ratings.

Moody's then uses its JDA methodology to incorporate the potential for external support into a bank's local currency deposit rating. The potential for external support can reduce the riskiness of a bank's deposit and debt obligations; however, such support is often uncertain. Moody's uses conservative support assumptions and a limited number of support levels to ensure that sufficient weight is given to a bank's intrinsic financial strength in its bank deposit and debt ratings.

Moody's uses deposit ratings to determine bank debt ratings based on its notching guidelines for bank securities. Ratings for foreign currency obligations are determined after considering Moody's country ceilings for foreign currency ratings.

The methodologies are being implemented country by country, with results being announced on a weekly basis. Results for those banks with a parent bank located in another country where the methodologies have not yet been implemented will be concluded at the same time as the parent.

Based on this framework, the implementation of the JDA methodology has led to the upgrade in the local currency deposit ratings of several Taiwanese banks, mainly due to systemic support. Moody's assesses systemic support levels for banks in Taiwan using its high country support guideline. This guideline takes into consideration the historic evidence of support for banks, in addition to the size, strength and the degree of fragmentation of the Taiwanese banking system. The average ratings uplift from the stand-alone baseline credit assessment implied by the BFSR for all rated banks in Taiwan due to systemic support was 3.6 notches.

In particular, wholly owned government policy banks received the most uplift. However, the ratings of both Bank of Taiwan and Land Bank of Taiwan had already incorporated considerable systemic support. Their ratings were upgraded by only one and two notches, respectively. Their deposit ratings are now equal to Taiwan's Local Currency Deposit Ceiling of Aa3.

In connection with the JDA rollout for rated banks, issuer ratings for financial holding companies in Taiwan are accordingly and mostly adjusted upwards. In principle, bank-dominated financial holding companies' ratings were one-notch down from those of their bank subsidiaries, given Taiwan's high-support stance towards the financial sector.

Extra notching (i.e. at most 2 notches for Taiwan), however, was considered for those financial holding companies which either show relatively high leverage or may provide financial support to weaker or growing non-bank subsidiaries important to the group in terms of business scale or earnings.

This press release lists the names of issuers in Taiwan whose ratings have been changed or affirmed. To view all ratings changes and other documents explaining Moody's bank rating methodologies, please go to www.moodys.com/JDABanks.

The specific ratings changes are as follows:

Bank of Taiwan:

The BFSR is changed to D+ from C-. The Long-Term Foreign and Local Currency Deposit Ratings were upgraded to Aa3 from A1. The Short-Term Foreign and Local Currency Deposit Ratings remain unchanged at Prime-1. The outlook for all ratings is stable.

SinoPac Group:

Bank SinoPac's BFSR remains unchanged at D+. The Long-Term/Short-Term Local Currency Deposit Ratings were assigned at Baa1/Prime-2. The Long-Term/Short-Term Foreign Currency Deposit Rating was upgraded to Baa1/Prime-2, one notch up from Baa2/Prime-3. The outlook for all ratings is stable.

SinoPac Financial Holding Company's (FHC) Long-Term Issuer Rating was upgraded to Baa2, one notch up from Baa3. The outlook is stable.

Cathay Group:

Cathay United Bank's BFSR remains unchanged at C-. The Long-Term/Short-Term Local Currency Deposit Rating was assigned at A1/Prime-1. The Long-Term Foreign Currency Deposit Rating was upgraded to A1 from A3. The Short-Term Foreign Currency Deposit Rating is unchanged at Prime-1. The US Dollar Subordinated Debt Rating was upgraded to A2 from Baa1. The outlook for all ratings is stable.

Cathay FHC's Long-Term Issuer Rating remains unchanged at A3. The outlook is stable.

China Development Industrial Bank:

The BFSR is unchanged at C-. The Long-Term/Short-Term Local Currency Deposit Ratings were assigned at Baa1/Prime-2. The Long-Term/Short-Term Foreign Currency Deposit Ratings were upgraded to Baa1/Prime-2 from Baa2/Prime-3. The outlook for all ratings is stable.

Chinatrust Group:

Chinatrust Commercial Bank's BFSR is unchanged at C-. The Long-Term/Short-Term Local Currency Deposit Rating was assigned at A2/Prime-1. The Long-Term Foreign Currency Deposit Rating was upgraded to A2 from A3. The Short-Term Foreign Currency Deposit Rating is unchanged at Prime-1. The US Dollar Senior Unsecured MTN Rating was upgraded to A2 from A3. The US Dollar Subordinated MTN rating was upgraded to A3 from Baa1. The outlook for all ratings is stable.

Chinatrust Commercial Bank, Hong Kong Branch's US Dollar Junior Subordinated Debt Rating remains unchanged at Baa1. The outlook for the rating is stable.

Chinatrust FHC's Long-Term Issuer Rating and Senior Unsecured Debt Rating were upgraded to A3 from Baa1. The outlook is stable.

Land Bank of Taiwan:

The BFSR is unchanged at D. The Long-Term Foreign and Local Currency Deposit Ratings were upgraded to Aa3 from A2. The Short-Term Foreign and Local Currency Deposit Ratings are unchanged at Prime-1. The outlook for all ratings is stable.

Mega Group:

Mega International Commercial Bank's BFSR is changed to C- from D+. The Long-Term/Short-Term Local Currency Deposit Ratings were assigned at A1/Prime-1. The Long-Term Foreign Currency Deposit Rating was upgraded to A1 from A2. The Short-Term Foreign Currency Deposit Rating is unchanged at Prime-1. The outlook for all ratings is stable.

Mega FHC's Long-Term Issuer Rating was upgraded to A3 from Baa1. The outlook is stable.

Fubon Group:

Taipei Fubon Bank's BFSR is unchanged at C-. The Long-Term Local Currency Deposit Rating was upgraded to A2 from A3. The Short-Term Local Deposit Rating remains at Prime-1. The Long-Term/Short-Term Foreign Currency Deposit Ratings were assigned at A2/Prime-1. The outlook for all ratings is stable.

Fubon FHC's Long-Term Issuer Rating was upgraded to Baa1, one notch up from Baa2. The outlook is stable.

Taishin Group:

Taishin International Bank's BFSR is unchanged at D+ with stable outlook. The Long-Term/Short-Term Local Currency Deposit Ratings were upgraded to Baa1/Prime-2 from Baa2/Prime-3, with positive outlook. The Long-Term/Short-Term Foreign Currency Deposit Ratings were assigned at Baa1/Prime-2 with positive outlook. The Foreign Currency Long-Term Issuer Rating was upgraded to Baa1 from Baa2, with positive outlook. The Long-Term/Short-Term Taiwan National Scale Deposit Ratings were upgraded to Aa3.tw/TW-1 from A1.tw/TW-1, with positive outlook.

Taishin FHC's Long-Term Issuer Rating is unchanged at Baa3. The Long-Term Taiwan National Scale Issuer Rating is unchanged at A2.tw. The Local Currency Subordinated Debt Taiwan National Scale Rating is unchanged at Baa1.tw. The outlook for all ratings is positive.

The following ratings were affirmed:

Chang Hwa Commercial Bank: The BFSR remains unchanged at D with positive outlook. The Long-Term/Short-Term Foreign Currency Deposit Ratings are unchanged at A3/Prime-1 with stable outlook. The Long-Term/Short-Term Taiwan National Scale Deposit Ratings are unchanged at Aa2.tw/TW-1 with stable outlook.

ESUN Group:

ESUN Bank's BFSR is unchanged at D+. The Foreign Currency Deposit Rating is unchanged at Baa2/Prime-3. The Long-Term/Short-Term Taiwan National Scale Deposit Ratings are unchanged at A1.tw/TW-1. The outlook for all ratings is stable.

ESUN FHC's Long-Term Issuer Rating remains unchanged at Baa3 and its Local Currency Long-Term/Short-Term Issuer Ratings unchanged at Baa3/Prime-3. The Long-Term/Short-Term Taiwan National Scale Issuer Ratings are unchanged at A2.tw/TW-2. The Subordinated Debt Taiwan National Scale Rating is unchanged at A3.tw. The outlook for all ratings is stable.

First Commercial Bank: The BFSR is unchanged at D. The Long-Term/Short-Term Foreign Currency Deposit Rating is unchanged at A3/Prime-1. The Long-Term/Short-Term Taiwan National Scale Deposit Ratings are unchanged at Aa2.tw/ TW-1. The outlook for all ratings is stable.

Hua Nan Commercial Bank: The BFSR is unchanged at D. The Long-Term/Short-Term Foreign Currency Deposit Rating is unchanged at A3/Prime-1. The Long-Term/Short-Term Taiwan National Scale Deposit Ratings are unchanged at Aa2.tw/ TW-1. The outlook for all ratings is stable.

ABOUT MOODY'S BANK RATINGS

Bank Financial Strength Rating

Moody's Bank Financial Strength Ratings (BFSRs) represent Moody's opinion of a bank's intrinsic safety and soundness and, as such, exclude certain external credit risks and credit support elements that are addressed by Moody's Bank Deposit Ratings. Bank Financial Strength Ratings do not take into account the probability that the bank will receive such external support, nor do they address risks arising from sovereign actions that may interfere with a bank's ability to honor its domestic or foreign currency obligations. Factors considered in the assignment of Bank Financial Strength Ratings include bank-specific elements such as financial fundamentals, franchise value, and business and asset diversification. Although Bank Financial Strength Ratings exclude the external factors specified above, they do take into account other risk factors in the bank's operating environment, including the strength and prospective performance of the economy, as well as the structure and relative fragility of the financial system, and the quality of banking regulation and supervision.

Global Local Currency Deposit Rating

A deposit rating, as an opinion of relative credit risk, incorporates the Bank Financial Strength Rating as well as Moody's opinion of any external support. Specifically, Moody's Bank Deposit Ratings are opinions of a bank's ability to repay punctually its deposit obligations. As such, Moody's Global Local Currency Bank Deposit Ratings are intended to incorporate those aspects of credit risk relevant to the prospective payment performance of rated banks with respect to local currency deposit obligations, and includes: intrinsic financial strength and both implicit and explicit external support elements. Moody's Bank Deposit Ratings do not take into account the benefit of deposit insurance schemes which make payments to depositors, but they do recognize the potential support from schemes that may provide assistance to banks directly.

F

oreign Currency Deposit Rating

Moody's ratings on foreign currency bank obligations derive from the bank's local currency rating for the same class of obligation. The implementation of JDA for banks can lead to a high local currency ratings for certain banks, which could also produce high foreign currency ratings. Nevertheless, it should be reminded that foreign currency deposit ratings are in all cases constrained by the country ceiling for foreign currency bank deposits. This may result in the assignment of a different, and typically lower, rating for the foreign currency deposits relative to the bank's rating for local currency obligations.

Foreign Currency Debt Rating

Foreign currency debt ratings are derived from the bank's local currency debt rating for the same class of obligation. In a similar way to foreign currency deposit ratings, foreign currency debt obligations may also be constrained by the country ceiling for foreign currency bonds and notes, however, in some cases the ratings on foreign currency debt obligations may be allowed to pierce the foreign currency ceiling. A particular mix of rating factors are taken into consideration in order to assess whether a foreign currency bond rating pierces the country ceiling. They include the issuer's global local currency rating, the foreign currency government bond rating, the country ceiling for bonds and the debt's eligibility to pierce that ceiling.

National Scale Rating

National scale ratings are intended primarily for use by domestic investors and are not comparable to Moody's globally applicable ratings; rather they address relative credit risk within a given country. An Aaa rating on Moody's National Scale indicates an issuer or issue with the strongest creditworthiness and the lowest likelihood of credit loss relative to other domestic issuers. National Scale Ratings, therefore, rank domestic issuers relative to each other and not relative to absolute default risks. National ratings isolate systemic risks; they do not address loss expectation associated with systemic events that could affect all issuers, even those that receive the highest ratings on the National Scale.

Taipei
Cherry Huang, CFA
Vice President - Senior Analyst
Financial Institutions Group
Moody's Taiwan Corporation
Telephone: 886-2-2757-7125
Facsimile: 886-2-2757-7129

Hong Kong
Jerry Chien
Managing Director
Financial Institutions Group
Moody's Asia Pacific Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (852) 2916-1121

No Related Data.
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