Hong Kong, November 14, 2018 -- Moody's Investors Service has upgraded E. Sun Commercial
Bank, Ltd.'s long-term deposit rating to A2
from A3 and short-term deposit rating to P-1 from P-2.
At the same time, Moody's has upgraded E. Sun Commercial
Bank's long-term senior unsecured rating to A2 from A3,
long-term Counterparty Risk Assessment (CR Assessment) to A1(cr)
from A2(cr), and long-term Counterparty Risk Ratings (CRR)
to A1 from A2.
In addition, Moody's has affirmed its Baseline Credit Assessment
(BCA) and Adjusted BCA at baa2, short-term CR Assessment
at P-1(cr), and short-term CRRs at P-1.
Moody's has also upgraded E. Sun Financial Holding Company
Limited's long-term issuer ratings to A3 from Baa1 and affirmed
its short-term issuer rating at P-2.
The outlook on the E. Sun Commercial Bank's long-term deposit
and senior unsecured ratings remains stable. The stable outlook
on E. Sun Financial Holding's long-term issuer ratings
mirrors the stable outlook on E. Sun Commercial Bank.
A full list of the affected ratings and assessments is provided at the
end of this press release.
RATINGS RATIONALE
E. Sun Commercial Bank, Ltd.
-- BCA and Adjusted BCA
The affirmation of E. Sun Commercial Bank's BCA and Adjusted
BCA takes into account the bank's (1) track record of sound asset
quality metrics with healthy loan-loss coverage; (2) improvement
in capitalization due to equity raising and slowing growth in risk-weighted
assets; (3) improving profitability; and (4) sound liquidity
profile. The BCA also takes into account the bank's high
exposure to the property, electronics and related equipment sectors
and above peer-average loan growth in previous years.
E. Sun Commercial Bank has maintained sound asset quality despite
above peer-average loan growth over the past five years,
reflecting prudent risk management.
The bank has a well-diversified loan portfolio which is evenly
split between corporate and retail lending. Asset quality should
remain broadly stable due to bank's diversified portfolio,
which partially mitigates the bank's exposure to a potentially more
subdued operating environment.
E. Sun Commercial Bank has raised multiple rounds of new equity
through the parent company, E. Sun Financial Holding Company,
to support its loan growth and acquisitions in the past five years.
These equity raisings -- coupled with its satisfactory internal
capital generation capability -- support its growth.
In addition, the government lowered the regulatory risk weights
on residential mortgages in December 2017 which contributed to the bank's
higher reported capital ratios.
Meanwhile, E. Sun Commercial Bank has reported an improvement
in profitability -- as measured by return on average assets --
in the first half of 2018. The bank's improved profitability
was mainly driven by strong increase in non-interest income.
Credit costs remain at a very low level.
The bank has maintained a robust liquidity profile with little reliance
on market funds. It has a strong customer deposit base and has
even deposit contributions between corporate and retail customers.
Moody's does not incorporate affiliate support in E. Sun
Commercial Bank's baa2 Adjusted BCA.
-- Deposit and senior unsecured ratings
The upgrade of E. Sun Commercial Bank's long-term
deposit and senior unsecured ratings reflects Moody's repositioning
of the government support uplift as a result of the bank's increased
market share and systemic importance in Taiwan over the past few years.
As one of the largest private sector banks in Taiwan, E.
Sun Commercial Bank offers diversified banking services to serve its customers.
The bank's deposit market share continued to increase since it exceeded
4% for the first time at end-2014. At end-August
2018, its deposit market share has reached almost 5%,
which is comparable to Moody's rated peers in Taiwan. Moreover,
the bank's asset scale has increased over the past years under its
strategy of above peer-average balance sheet growth.
Moody's does not consider Taiwan an Operational Resolution Regime.
Therefore, Moody's applies a Basic Loss Given Failure (LGF)
approach in rating Taiwanese banks' securities.
The ratings take into account (1) the bank's baa2 Adjusted BCA;
(2) Moody's Basic LGF analysis, resulting in the Preliminary
Rating Assessments (PRA) on deposit and senior unsecured ratings being
at the same level as the bank's Adjusted BCA; and (3) Moody's
assumption that the bank will receive a very high level of support from
Government of Taiwan (Aa3 stable) in times of need, resulting in
three notches of uplift.
Moody's assumption of government support is based on the government's
track record of maintaining confidence in the banking system in times
of economic volatility as well as the absence of bank deposit defaults
in the past.
-- CR Assessment and CRR
The upgrade of E. Sun Commercial Bank's long-term
CR Assessment and CRRs reflects Moody's repositioning of the government
support uplift as a result of the bank's increased market share
and systemic importance in Taiwan over the past few years, and are
in line with the support assumptions on the deposit and senior unsecured
ratings.
The long-term CR Assessment and CRRs take into account (1) the
bank's baa2 Adjusted BCA; (2) Moody's Basic LGF analysis,
resulting in the PRAs on CR Assessment and CRRs positioned one notch above
the bank's Adjusted BCA; and (3) Moody's assumption of
a very high level government support in times of need, resulting
in three notches of uplift.
In Moody's opinion, senior obligations represented by the CR Assessment
are likely to be preserved to limit contagion, minimize losses and
avoid disruption of the bank's critical functions.
The CRRs also take into consideration Moody's expectation that the uncollateralized
portion of the bank's non-debt counterparty financial liabilities
(CRR obligations) will receive preference relative to junior depositors
and senior unsecured creditors, given the desire of the government
to ensure the continuity of a failing bank's operations.
E. Sun Financial Holding Company Limited
The upgrade of E. Sun Financial Holding's long-term
issuer ratings reflects the increased market share and systemic importance
of the company's key subsidiary, E. Sun Commercial
Bank, and the company's low double leverage ratio.
E. Sun Commercial Bank accounted for 98% of the group's
total assets at the end of June 2018 and contributed 94% of net
profits in the first half of 2018.
E. Sun Financial Holding's issuer ratings take into account
the PRA which is one notch lower than the company's baa2 notional
BCA to reflect the structural subordination of the holding company senior
creditors to the bank senior creditors under Moody's Basic LGF analysis.
The issuer ratings also incorporate three notches of government support
uplift, which is in line with that of E. Sun Commercial Bank.
WHAT COULD CHANGE THE RATINGS UP
E. Sun Commercial Bank's BCA could be upgraded if the bank shows
a sustainable improvement in its (1) profitability, with a return
on average assets above 0.85%; (2) capitalization,
with TCE/RWA rises above 11%; and/or (3) the bank maintains
impaired loans below 1% of gross loans as it continues to seek
above industry-average growth.
E. Sun Commercial Bank's deposit ratings, senior unsecured
rating, CR Assessment and CRRs could be upgraded if its BCA and
Adjusted BCA are upgraded.
E. Sun Financial Holding's issuer ratings could be upgraded
if (1) there is a significant improvement in the financial strength of
the bank subsidiary; and (2) the company maintains a stable double
leverage ratio.
WHAT COULD CHANGE THE RATINGS DOWN
E. Sun Commercial Bank's BCA could be downgraded if its (1) asset
quality deteriorates with impaired loans rising above 2% of gross
loans; (2) capitalization declines materially, with TCE falling
to less than 8% of RWA; and/or (3) overly aggressive growth,
either through acquisitions or organically in domestic or overseas markets,
which strains its financial profile and management resources.
E. Sun Commercial Bank's deposit ratings, senior unsecured
rating, CR Assessment and CRRs could be downgraded should the government's
capacity or willingness to support the bank weaken.
E. Sun Financial Holding's issuer ratings could be downgraded
if (1) E. Sun Commercial Bank's Adjusted BCA or deposit rating
is downgraded; (2) there is a material deterioration in the credit
profile of other operating subsidiaries of the company; or (3) there
is substantial increase in the company's financial leverage,
with a double leverage ratio exceeding 115%.
The principal methodology used in these ratings was Banks published in
August 2018. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
E. Sun Commercial Bank, Ltd. and E. Sun Financial
Holding Company Limited are both headquartered in Taipei. At 30
June 2018, E. Sun Commercial Bank reported total assets of
TWD2.1 trillion while E. Sun Financial Holding reported
total assets of TWD2.2 trillion.
LIST OF AFFECTED RATINGS AND ASSESSMENTS
E. Sun Commercial Bank, Ltd.
- BCA and Adjusted BCA affirmed at baa2
- Long-term foreign currency bank deposit rating upgraded
to A2 from A3; stable outlook
- Short-term foreign currency bank deposit rating upgraded
to P-1 from P-2
- Long-term foreign currency senior unsecured rating upgraded
to A2 from A3; stable outlook
- Long-term foreign currency and local currency counterparty
risk ratings upgraded to A1 from A2
- Short-term foreign currency and local currency counterparty
risk ratings affirmed at P-1
- Long-term counterparty risk assessment upgraded to A1(cr)
from A2(cr)
- Short-term counterparty risk assessment affirmed at P-1(cr)
- Outlook maintained stable
E. Sun Financial Holding Company Limited
- Long-term foreign currency and local currency issuer ratings
upgraded to A3 from Baa1; stable outlook
- Short-term local currency issuer rating affirmed at P-2
- Outlook maintained stable
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.
Moody's considers a rated entity or its agent(s) to be participating
when it maintains an overall relationship with Moody's. Unless
noted in the Regulatory Disclosures as a Non-Participating Entity,
the rated entities are participating and the rated entities or their agent(s)
generally provide Moody's with information for the purposes of its
ratings process. Please refer to www.moodys.com for
the Regulatory Disclosures for each credit rating action under the ratings
tab on the issuer/entity page and for details of Moody's Policy
for Designating Non-Participating Rated Entities.
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.
Winnie Tang
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
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
