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Rating Action:

Moody's assigns Counterparty Risk Rating to 11 Taiwan banks

26 Jun 2018

Hong Kong, June 26, 2018 -- Moody's Investors Service has today assigned Counterparty Risk Ratings (CRRs) to 11 banks in Taiwan.

The 11 Taiwan banks affected are: 1) Bank of Taiwan, 2) Cathay United Bank Co., Ltd, 3) Chang Hwa Commercial Bank, 4) CTBC Bank Co., Ltd., 5) DBS Bank (Taiwan) Ltd, 6) E. Sun Commercial Bank, Ltd. (E. SUN), 7) First Commercial Bank, 8) Hua Nan Commercial Bank Ltd. (Hua Nan), 9) Land Bank of Taiwan (Land Bank), 10) Mega International Commercial Bank (Mega), and 11) Taipei Fubon Commercial Bank Co Ltd (Taipei Fubon).

Moody's Counterparty Risk Ratings are opinions of the ability of entities to honour the uncollateralized portion of non-debt counterparty financial liabilities (CRR liabilities) and also reflect the expected financial losses in the event such liabilities are not honoured. CRR liabilities typically relate to transactions with unrelated parties. Examples of CRR liabilities include the uncollateralized portion of payables arising from derivatives transactions and the uncollateralized portion of liabilities under sale and repurchase agreements. CRRs are not applicable to funding commitments or other obligations associated with covered bonds, letters of credit, guarantees, servicer and trustee obligations, and other similar obligations that arise from a bank performing its essential operating functions.

For a full list of assigned CRRs, please refer to the end of this press release.

RATINGS RATIONALE

The CRRs assigned to the 11 banks are in line with the Counterparty Risk Assessments (CRAs) already assigned to the same banks.

Because Moody's considers that Taiwan does not to have an operational resolution regime, in assigning CRRs to the Taiwan banks subject to this rating action, Moody's applies its basic Loss Given Failure (LGF) approach. Moody's basic LGF analysis positions CRRs in line with the banks' CRAs, one notch above the banks' adjusted BCAs, prior to government support.

Furthermore, the CRRs also incorporate one to five notches of uplift due to Moody's assessment of expected government support for the 11 banks in times of need, based on the banks' systemic importance in Taiwan. The uplifts are also in line with those applied to the CRAs.

OUTLOOK

CRRs do not carry outlooks.

FACTORS THAT COULD LEAD TO AN UPGRADE/DOWNGRADE

As BCA is one of the main inputs that drive CRRs, the CRRs could be upgraded following an upgrade of rated banks' respective BCAs. However potential upgrades could be constrained by Taiwan's sovereign debt rating. Conversely, the CRRs could be downgraded following a downgrade of the banks' respective BCAs.

More bank-specific rating triggers are summarized below.

Bank of Taiwan

Bank of Taiwan's Aa3 CRR is at the same level as Taiwan's sovereign debt rating. Therefore, an upgrade of CRR is unlikely.

Bank of Taiwan's BCA could be upgraded if its 1) profitability improves, such that net income exceeds 0.3% of its tangible banking assets; or 2) consistently maintains a Common Equity Tier 1 ratio above 9%.

Bank of Taiwan's CRR could be downgraded if the government reduces its stake in the bank or if the bank's policy role diminishes.

Bank of Taiwan's BCA could be downgraded if its 1) asset quality deteriorates significantly and credit costs rise sharply, with problem loans rising to above 3% of gross loans, 2) Common Equity Tier 1 ratio falls below 8%; or 3) financial metrics deteriorate significantly as a result of government-directed acquisitions.

Cathay United Bank Co., Ltd

Cathay United Bank's BCA and CRR could be raised if it (1) maintains its good asset-quality metrics; (2) reduces its loan concentration to the real estate-related sector, (3) improves its capitalization, with tangible common equity/risk-weighted assets above 11%; or (4) improves its profitability, with net income/tangible assets above 1.0%.

Cathay United Bank's BCA and CRR could be lowered if (1) industry competition intensifies, straining the bank's profitability, with return on tangible assets falling below 0.7%, (2) adverse macroeconomic conditions lead to a material weakening in the bank's asset-quality metrics, with impaired loans rising above 2.5% of gross loans; or (3) the bank's tangible common equity/risk-weighted assets ratio falls below 9% because of strong growth or acquisitions.

Chang Hwa Commercial Bank

Chang Hwa Commercial Bank's BCA and CRR could be upgraded if it can strengthen its capitalization and profitability, with tangible common equity/risk-weighted assets ratio above 12% and return on tangible assets above 1.0%.

Chang Hwa Commercial Bank's BCA and CRR could be downgraded if its 1) asset quality deteriorates significantly, with impaired loans rising above 2.5% of gross loans, 2) tangible common equity/risk-weighted assets ratio falls below 8.5%, 3) credit profile weakens owing to aggressive expansion in the overseas or mainland China markets; and/or 4) government support decreases, owing to a decline in government ownership.

CTBC Bank Co., Ltd.

CTBC Bank's BCA and CRR could be upgraded if its 1) tangible common equity/risk-weighted assets ratio improves to above 11%; or 2) asset quality improves, with an impaired loan ratio falling below 1%

CTBC Bank's BCA and CRR could be downgraded if its (1) profitability deteriorates, with net income falling below 0.5% of tangible assets, (2) capitalization weakens, with its tangible common equity/risk-weighted assets ratio falling below 8%, (3) asset quality deteriorates, with its impaired loan ratio exceeding 3%; or 4) capitalization weakens owing to debt-financed acquisitions.

DBS Bank (Taiwan) Ltd

DBS Bank (Taiwan)'s CRR incorporates a very high level of parental support. Hence, its CRR could be upgraded if the parent's BCA is upgraded.

DBS Bank (Taiwan)'s BCA could also be raised if the bank improves its 1) capitalization, with tangible common equity /risk-weighted assets ratio above 11%; or 2) profitability, with net income/tangible assets ratio consistently above 0.4%.

DBS Bank (Taiwan)'s CRR may be downgraded if there is a weakening of parental support or if the parent's standalone credit assessment is adjusted downward by multiple notches.

DBS Bank (Taiwan)'s BCA could also be downgraded if its 1) asset quality deteriorates amid adverse macroeconomic conditions, with impaired loans rising above 2.7% of gross loans; or 2) tangible common equity/risk-weighted assets ratio declines to below 8%.

E. Sun Commercial Bank, Ltd.

E. SUN's BCA and CRR could be upgraded if it improves its (1) profitability, with a return on average assets above 0.85%, (2) capitalization, such that its tangible common equity/risk-weighted assets ratio rises above 10%; or (3) maintains prudent risk management as it continues to seek above-industry-average growth.

E. SUN's BCA and CRR could be downgraded if its (1) asset quality deteriorates owing to a weakening of the operating environment, with impaired loans rising above 2% of gross loans, (2) capitalization declines materially, with tangible common equity/risk-weighted assets ratio falling below 7.5%; or 3) overly aggressive growth, either through acquisitions or organically, which strains its financial profile and management resources.

First Commercial Bank

First Commercial Bank's BCA and CRR could be upgraded if it can strengthen its capitalization and profitability, with tangible common equity/risk-weighted assets ratio above 12% and return on tangible assets above 1.0%.

First Commercial Bank's BCA and CRR could be downgraded if it's 1) asset quality deteriorates significantly, with impaired loans rising above 2.5% of gross loans, 2) tangible common equity/risk-weighted assets ratio falls below 8.5%, 3) its credit profile weakens, owing to aggressive expansion in overseas or mainland China markets; and/or 4) government support decreases, owing to a decrease in government ownership.

Hua Nan Commercial Bank Ltd.

Hua Nan's BCA and CRR could be upgraded if it can strengthen its capitalization and profitability, with tangible common equity/risk-weighted assets ratio above 12% and return on tangible assets above 1.0%.

Hua Nan's BCA and CRR could be downgraded if its 1) asset quality deteriorates significantly, with impaired loans rising above 2.5% of gross loans, 2) tangible common equity/risk-weighted assets ratio falls below 8.5%, 3) its credit profile weakens, owing to aggressive expansion in overseas or mainland China markets; and/or 4) government support decreases, owing to a decrease in government ownership.

Land Bank of Taiwan

Land Bank's Aa3 CRR is at the same level as Taiwan's sovereign debt rating. Therefore, an upgrade of CRR is unlikely.

Land Bank's BCA could be upgraded if it can improve its 1) capitalization and profitability, with a Common Equity Tier 1 ratio above 10.5%, and 2) net income/tangible asset ratio above 0.6% while maintaining its other financial metrics at current levels.

Land Bank's CRR could be downgraded if government support weakens or if the bank's policy role diminishes.

Land Bank's BCA could be downgraded if its (1) asset quality deteriorates significantly, with problem loan ratio above 3.5%; or (2) financial profile weakens owing to government-directed mergers and acquisitions, or due to government directives to carry out unprofitable policy functions.

Mega International Commercial Bank

Mega's Aa3 CRR is at the same level as Taiwan's sovereign debt rating. Therefore, an upgrade of CRR is unlikely.

Mega's BCA can be upgraded if it 1) reduces its concentration in the commercial real state/construction sector, 2) further improves its capitalization, with Common Equity Tier 1 ratio rising above 14%; and 3) improves its liquidity profile, with an increase in retail deposits, would also contribute to an improvement in its standalone financial profile.

Mega's CRR could be downgraded if there is a reduction in the expected government support for the bank.

Mega's BCA could be downgraded if (1) asset quality deteriorates significantly, with impaired loans rising to more than 3% of gross loans, (2) capital adequacy falls materially, with Common Equity Tier 1 ratio falling below 10%, or (3) the bank's funding position weakens materially, with material increases in the bank's wholesale funding.

Taipei Fubon Commercial Bank Co Ltd

Taipei Fubon's BCA and CRR could be upgraded if it improves its profitability and asset-quality metrics, with return on assets above 1.0% and an impaired loan ratio below 0.7%.

Taipei Fubon's BCA and CRR could be downgraded if (1) keen competition leads to lower profitability, with return on assets falling consistently below 0.6%; (2) asset quality deteriorates materially, with impaired loans rising above 2.7% of gross loans, (3) Common Equity Tier 1 ratio falls below 8%; and/or 4) rapid growth, either through acquisitions or organically, strains its financial profile and management resources.

LIST OF ASSIGNED RATINGS

Bank of Taiwan

Local and foreign currency long-term Counterparty Risk Ratings of Aa3

Local and foreign currency short-term Counterparty Risk Ratings of P-1

Cathay United Bank Co., Ltd

Local and foreign currency long-term Counterparty Risk Ratings of A1

Local and foreign currency short-term Counterparty Risk Ratings of P-1

Chang Hwa Commercial Bank

Local and foreign currency long-term Counterparty Risk Ratings of A1

Local and foreign currency short-term Counterparty Risk Ratings of P-1

CTBC Bank Co., Ltd.

Local and foreign currency long-term Counterparty Risk Ratings of A1

Local and foreign currency short-term Counterparty Risk Ratings of P-1

DBS Bank (Taiwan) Ltd

Local and foreign currency long-term Counterparty Risk Ratings of A1

Local and foreign currency short-term Counterparty Risk Ratings of P-1

E. Sun Commercial Bank, Ltd.

Local and foreign currency long-term Counterparty Risk Ratings of A2

Local and foreign currency short-term Counterparty Risk Ratings of P-1

First Commercial Bank

Local and foreign currency long-term Counterparty Risk Ratings of A1

Local and foreign currency short-term Counterparty Risk Ratings of P-1

Hua Nan Commercial Bank Ltd.

Local and foreign currency long-term Counterparty Risk Ratings of A1

Local and foreign currency short-term Counterparty Risk Ratings of P-1

Land Bank of Taiwan

Local and foreign currency long-term Counterparty Risk Ratings of Aa3

Local and foreign currency short-term Counterparty Risk Ratings of P-1

Mega International Commercial Bank

Local and foreign currency long-term Counterparty Risk Ratings of Aa3

Local and foreign currency short-term Counterparty Risk Ratings of P-1

Taipei Fubon Commercial Bank Co Ltd

Local and foreign currency long-term Counterparty Risk Ratings of A1

Local and foreign currency short-term Counterparty Risk Ratings of P-1

The principal methodology used in these ratings was Banks published in June 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Bank of Taiwan is headquartered in Taipei. It reported total assets of TWD4.9 trillion at 31 December 2017.

Cathay United Bank Co., Ltd is headquartered in Taipei. It reported total assets of TWD2.8 trillion at 31 March 2018.

Chang Hwa Commercial Bank is headquartered in Taipei. It reported total assets of TWD2.1 trillion at 31 March 2018.

CTBC Bank Co., Ltd. is headquartered in Taipei. It reported total assets of TWD3.8 trillion at 31 March 2018.

DBS Bank (Taiwan) Ltd is headquartered in Taipei. It reported total assets of TWD0.5 trillion at 31 March 2018.

E. Sun Commercial Bank, Ltd. is headquartered in Taipei. It reported total assets of TWD2.1 trillion at 31 March 2018.

First Commercial Bank is headquartered in Taipei. It reported total assets of TWD2.6 trillion at 31 March 2018.

Hua Nan Commercial Bank Ltd. is headquartered in Taipei. It reported total assets of TWD2.5 trillion at 31 March 2018.

Land Bank of Taiwan is headquartered in Taipei. It reported total assets of TWD2.9 trillion at 31 December 2017.

Mega International Commercial Bank is headquartered in Taipei. It reported total assets of TWD3.1 trillion at 31 March 2018.

Taipei Fubon Commercial Bank Co Ltd is headquartered in Taipei. It reported total assets of TWD2.7 trillion at 31 March 2018.

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
VP - Senior Credit Officer
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

Minyan Liu
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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