Taipei, June 18, 2009 -- Moody's Investors Service has taken multiple rating actions on two
banks and one financial holding company in Taiwan to reflect the stresses
arising from the financial crisis.
The institutions are SinoPac Financial Holding Company, Hua Nan
Commercial Bank, and Taiwan Cooperative Bank.
Specifically, the following rating actions were taken, as
announced by Cherry Huang, a Moody's Vice President and Senior
(1) SinoPac Financial Holding Company (SinoPac FHC): Foreign currency
issuer rating is confirmed at Baa2 with negative outlook. This
concludes our review for possible downgrade of SinoPac FHC's rating
initiated on December 22, 2008.
(2) Hua Nan Commercial Bank: Outlook on D bank financial strength
rating (BFSR), A3 local and foreign currency deposit ratings,
Aa2.tw national scale deposit rating and P-1 short-term
local and foreign currency deposit ratings is changed to negative from
(3) Taiwan Cooperative Bank: Outlook on D BFSR, A2 local and
foreign currency deposit ratings, Aa1.tw national scale deposit
rating is changed to negative from stable.
Rating Actions on BFSRs
The BFSR outlook changes for both banks reflect Moody's concern
that their core capital levels could be further weakened by the expected
deterioration in asset quality. In determining the BFSRs,
Moody's assessed each bank's capital level after incorporating
expected losses from risk assets using scenario analysis. The application
of a forward-looking view on the banks' capital ratios is
in line with Moody's reports "Calibrating Bank Ratings in
the Context of the Global Financial Crisis" and "Moody's
Approach to Estimating Bank Credit Losses and their Impact on Bank Financial
Strength Ratings", published in February and May respectively
this year. Both are available on www.moodys.com.
In general, for Taiwanese banks, weakening earnings and rising
credit costs will pressure their already moderate to weak capital adequacy
levels, while capital raisings have proved challenging in a less
favorable market environment.
The system NPL ratio rose to 1.63% in April 2009 from 1.54%
at end-2008 and the NPL balance has yet to incorporate the restructured
loans initiated by the government's debt-relief program.
Credit costs are expected to continue rising, based on Moody's
forecast of a 5.2% contraction for Taiwan's GDP in
The system's net interest margin came under pressure and narrowed
to 1.15% in 1Q2009 from 1.84% in 3Q2008 following
consecutive rate cuts by 2.375 percentage points by the central
bank to 1.25% since last September. The contraction
in interest margins is unlikely to reverse until 2H2009 when the re-pricing
of costly time deposits will mostly occur.
Rating Action on Hua Nan Commercial Bank (HNCB)
The change of outlook to negative from stable of HNCB's BFSR reflects
the bank's relatively weaker levels of capitalization and asset
quality when compared to its D rated peers in Taiwan. Its NPLs
are rising and grew by 12% in 1Q2009. Stress testing also
considered its cash dividend policy and potential liabilities arising
from sales of PEMG-related investment products.
As a result of the BFSR outlook change, the outlook on HNCB's
A3 deposit rating, Aa2.tw national scale deposit rating and
P-1 short-term deposit rating was changed to negative from
Rating Action on Taiwan Cooperative Bank (TCB)
The change of outlook to negative from stable of TCB's BFSR also
reflects the bank's relatively weaker levels of capitalization and
asset quality when compared to its D rated peers in Taiwan. Its
NPLs are rising and grew by 10% in 1Q2009. Stress testing
also considered its cash dividend policy.
As a result of the BFSR outlook change, the outlook on TCB's
A2 deposit rating and Aa1.tw national scale deposit rating was
changed to negative from stable.
Rating Action on SinoPac FHC
SinoPac FHC's issuer rating was confirmed at Baa2 with negative
outlook to reflect moderation in losses incurred by its two main operating
subsidiaries, namely Bank SinoPac (BSP) and SinoPac Securities.
Accessibility to long-term wholesale funding, including syndication
and FRCP maturing in two to four years, also helped reinforce its
debt servicing capability.
However, the D+ BFSR and Baa1 long-term deposit ratings
of BSP continue to carry a negative outlook to incorporate the expectation
of further margin compression, weakening asset quality as well as
potential liabilities associated with BSP's sale of PEMG-related
Further, the negative outlook on SinoPac FHC's Baa2 issuer
rating aligns with the negative outlook on BSP's Baa1 deposit rating
with the one notch differential representing structural subordination
of creditors at holding company to those at the operating company level.
PREVIOUS RATING ACTIONS & PRINCIPAL METHODOLOGIES
The last rating action on SinoPac Holdings was taken on December 22,
2008, when its Baa2 foreign currency issuer rating was placed on
review for possible downgrade.
The last rating action on Hua Nan Commercial Bank was taken on Nov.
2, 2007, when Moody's affirmed its D BFSR, A3/P-1
local and foreign currency deposit ratings, and long-term/short-term
Taiwan national scale deposit ratings of Aa2.tw/TW-1,
as a result of a merger with its sister company - Hua Nan Bills
Finance Company. The outlook for all ratings was stable.
The last rating action on Taiwan Cooperative Bank was taken on December
7, 2007, when Moody's assigned first-time ratings.
Its long-term/short-term local and foreign currency deposit
ratings were A2 and Prime-1 and bank financial strength rating
(BFSR) was D. At the same time, Moody's Taiwan Corporation
has assigned the bank national scale ratings (NSR): Aa1.tw
for its long-term deposit rating and TW-1 for its short-term
deposit rating. The outlook for all ratings -- global
and NSR -- was stable.
The principal methodologies used in rating these issuers are the "Bank
Financial Strength Ratings: Global Methodology" (February 2007),
and "Incorporation of Joint-Default Analysis into Moody's Bank
Ratings: A Refined Methodology (March 2007)".
The principal methodology Moody's used for rating FHCs was "Taiwanese
Financial Holding Companies: Moody's Rating Approach and Outlook"
Moody's Taiwan Corporation used "National Scale Ratings in Taiwan" (October
2003) methodology in assigning both issuers' national scale ratings.
These 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
SinoPac Holdings, headquartered in Taipei, Taiwan, had
assets of NTD1.08 trillion as of end-March 2009 on a consolidated
Hua Nan Commercial Bank, headquartered in Taipei, Taiwan,
had assets of NTD1.65 trillion as of end-March 2009.
Taiwan Cooperative Bank, headquartered in Taipei, Taiwan,
had assets of NTD2.49 trillion as of end-March 2009.
The detailed ratings and actions are listed below:
SinoPac Group -
SinoPac FHC's foreign currency issuer rating: confirmed at
Baa2 with negative outlook
D+ BFSR and local and foreign currency short-term deposit
rating of P-2: stable outlook unchanged
Baa3 BCA (baseline credit assessment) and Baa1 local and foreign currency
deposit ratings: negative outlook unchanged
Hua Nan Commercial Bank --
D BFSR, A3 local and foreign currency deposit rating, Aa2.tw
national scale deposit rating and P-1 short-term local and
foreign currency deposit rating: outlook changed to negative from
TW-1 national scale short-term deposit rating: stable
Taiwan Cooperative Bank --
D BFSR, A2 local and foreign currency deposit rating, Aa1.tw
national scale deposit rating: outlook changed to negative from
P-1 short-term local and foreign currency deposit rating
and TW-1 national scale short-term deposit rating:
stable outlook unchanged
Moody's Taiwan Corporation's National Scale Ratings are intended as relative
measures of creditworthiness among debt issues and issuer within Taiwan,
enabling market participants to better differentiate relative risks.
NSRs in Taiwan are designated by the ".tw" suffix. NSRs
differ from the global scale ratings, as assigned by Moody's Investors
Service, in that they are not globally comparable to the full universe
of Moody's-rated entities, but only with other rated entities
within the same country.
Cherry Huang, CFA
Vice President - Senior Analyst
Financial Institutions Group
Moody's Taiwan Corporation
Moody's takes multiple actions on three Taiwan financial institutions
Financial Institutions Group
Moody's Asia Pacific Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (852) 3551-3077