Moody's changes outlook for Bank SinoPac to negative
Hong Kong, December 22, 2008 -- Moody's Investors Service has changed the outlook on Bank SinoPac's
Baa1/P-2 global local and foreign currency deposit ratings to negative
from stable. Its D+ bank financial strength rating (BFSR)
was unaffected by today's rating action.
At the same time, Moody's has placed the Baa2 foreign currency
issuer rating of its parent holding company, SinoPac Holdings (SPH)
on review for possible downgrade.
Moody's Taiwan Corporation has also announced that SinoPac Card
Services' issuer ratings of A3.Tw/TW-2 were unaffected
by today's actions and remain stable.
Today's rating action reflects expectations that the changing risk
positioning of Bank SinoPac (BSP) exposes it to potentially greater credit
losses in an increasingly difficult operating environment. Prior
to the intensification of the global economic downturn, BSP's
'07 and '08 investment losses combined with decreasing stability
in core earnings have cut into its formerly generous capitalization,
previously a key ratings strength especially relative to its peers in
the higher-end of the D+ BFSR.
While Moody's expects that BSP's credit fundamentals,
under anticipated stresses on its asset quality, will remain within
its current BFSR rating band, BSP could shift towards the lower-end
of the D+ BFSR resulting in a downgrade in the bank's deposit ratings.
While the main driver of its net losses in 2007 and year-to-date
was write-offs of its substantial exposures to structured investment
vehicles, its core earnings have additionally been weakening.
BSP's margins have become compressed due to its increased reliance
on higher cost deposits and fee income has declined on weakness in the
capital markets. Moody's expects these twin pressures to
continue into at least 2H09.
Following a management reshuffle in June 2008, the bank has targeted
changing its business mix to place greater emphasis on corporate and commercial
banking. As such, it restructured its operations in September
2008 to better achieve this goal. But such transformational changes
-- amid more adverse economic conditions -- mean higher
Additionally, its changing business strategy has resulted in increased
credit concentrations and a shift in its loan mix away from its previous
strength in retail loans. Moody's believes these shifts elevate
the bank's credit risk profile, as less granular loan portfolios
could lead to greater volatility in profitability.
Lastly, while a core rating strength of BSP has long been its strong
capital position relative to its peers, the bank's increasing
credit risk profile and weaker profitability have eroded this strength.
SPH's issuer rating was placed on review for downgrade in line with
the change in outlook on BSP's deposit rating and concerns over
its debt-servicing capacity. Net losses at its two largest
operating subsidiaries, BSP and SinoPac Securities, has reduced
the operating cash flow available for debt repayments.
During the review period, Moody's will monitor the ability
of SPH to access funds either from its subsidiaries or the market,
and whether as a result of these activities its double leverage increases.
Further deterioration in its subsidiaries or an increase in its double
leverage could trigger a widening of the one-notch difference between
its issuer rating and that of its main subsidiary, Bank SinoPac.
The outlook on SinoPac Card Services ratings were unaffected by today's
actions because any decrease in the amount of support the credit card
issuer would get from its parent is balanced by its improving stand-alone
The last rating action for Bank SinoPac and SinoPac Holdings was on October
30, 2007, when Bank SinoPac's bank financial strength rating
(BSFR) of D+ and foreign currency deposit ratings of Baa1/P-2
were affirmed. At the same time, Moody affirmed SinoPac Holdings'
ratings of Baa2. The last rating action for SinoPac Card Services
(formerly Anshin Card Services) was on October 04, 2006, when
Moody's Taiwan Corporation affirmed its A3.tw long-term
and TW-2 short-term National Scale Ratings (NSR).
The principal methodologies used in rating Bank SinoPac were "Bank Financial
Strength Ratings: Global Methodology" (February 2007) and "Incorporation
of Joint-Default Analysis into Moody's Bank Ratings: A Refined
Methodology" (March 2007). For rating SinoPac Holding Co.,
the principal methodology used was "Taiwanese Financial Holding
Companies: Moody's Rating Approach and Outlook" (February
2003). For SinoPac Card Services, the principle methodologies
used were "Analyzing The Credit Risks Of Finance Companies"
(October 2000) and "National Scale Ratings In Taiwan" (October
2003). All of these methodologies can be found at www.moodys.com
in the Credit Policy & Methodologies directory, in the Ratings
Methodologies subdirectory. Other methodologies and factors that
may have been considered in the process of rating this issuer can also
be found in the Credit Policy & Methodologies directory.
Full details of the rating action are as follows:
Change in the outlook on its local and foreign currency deposit ratings
of Baa1/Prime-2 to negative from stable.
Place on review for downgrade its issuer rating of Baa2.
Established in 1992, Bank SinoPac (BSP) is among the 16 new private
banks permitted after deregulation of the Taiwan banking sector.
With its emphasis on retail banking, the bank aims to become a full
service bank operating throughout the Pacific Rim. In May 2002,
it formally merged into SinoPac Holdings.
SinoPac Card Services, established in 1999, is a mono-line
credit card company which offers credit card issuance and related services.
It had total managed assets of NT$23 billion (approximately US$752
million) as of June 30, 2008.
It is a 100%-owned subsidiary of SinoPac Holdings.
SinoPac Holdings is headquartered in Taiwan and listed on the Taiwan Stock
Exchange. It had total assets of NT$1.1 trillion
(US$35 billion) as of June 30, 2008.
SinoPac Holdings reported consolidated assets of NT$1.1
trillion (approximately US$35 billion) as of June 30, 2008.
All three are headquartered in Taipei.
Moody's National Scale Ratings are not intended to be globally comparable.
Moody's also emphasizes that National Scale Ratings are not opinions on
absolute default risk. In this respect they are different to Moody's
global scale ratings assigned to Taiwanese institutions - which
do not carry the ".tw" suffix. These global scale ratings
are directly comparable to Moody's global ratings assigned elsewhere in
the world, and do address absolute default risk.
Vice President - Senior Analyst
Financial Institutions Group
Moody's Asia Pacific Ltd.
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Cherry Huang, CFA
Vice President - Senior Analyst
Financial Institutions Group
Moody's Taiwan Corporation