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Fitch Ratings-Taipei/Hong Kong/Singapore-11 June 2009: Fitch Ratings has today affirmed Citibank Taiwan Limited's (CTL) Long-term foreign currency Issuer Default Rating (IDR) at 'A', Short-term foreign currency IDR at 'F1', National Long-term rating at 'AA+(twn)', National Short-term rating at 'F1+(twn)' and Support rating at '1'. The Outlook remains Stable.
CTL's 'A' Long-term foreign currency IDR is predicated on the extremely high probability of parental support in the form of financial help, management and products by Citibank N.A. (CBNA, 'A+'/Stable), which identifies CTL as one of its core operating businesses. The agency notes that any rating action on CBNA could trigger a similar rating action on CTL. CTL is on Stable Outlook, in line with CBNA. Since its acquisition of CTL (formerly Bank of Overseas Chinese, BOOC) in December 2007, CBNA has deployed senior executives mostly from its Taiwanese branches to integrate and restructure CTL. The integration has proceeded fast and effectively thanks to CBNA's longstanding local experience and strong local expertise (via its successful branch operations in Taiwan).
CBNA plans to adopt a new operating model built on a large, locally-incorporated subsidiary (i.e. CTL), and a smaller CBNA branch and is currently seeking approval from local and overseas regulators. The transition is expected to be completed in Q309 while the existing 10 CBNA Taiwan branches will be merged into CTL. The consolidated CTL is expected to command a 2.7% market share in deposits and will operate 65 branches. Fitch expects the folding of CBNA Taiwan branches into CTL to substantially boost the latter's size and performance as CBNA Taiwan branches have a strong track record of profitability and asset quality.
CBNA's Taiwan branches have registered a net profit of TWD13bn in 2008, the largest among all banks operating in Taiwan. Its asset quality is strong, with a NPL ratio at 1.2% and loan loss reserve-to-NPL at over 500% at end-March 2009. On the other hand, CTL recorded a net loss of TWD0.7bn in 2008, due mainly to write-downs of legacy problem credits inherited from BOOC. The reduction in CTL's loan portfolio in 2008 and its improved credit process limit the downside risk with regards to asset quality.
CBNA is committed to maintaining the capitalisation of CTL at a satisfactory level, with a capital adequacy ratio targeted at above 10% by end-2009. The enlarged Citibank franchise should further enhance TWD liquidity strength, due to an expanded network of retail deposits. The Citibank brand name remains reasonably strong in Taiwan, despite the widely publicised difficulties surrounding CBNA in the past year.
Note to editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(twn)' for National ratings in Taiwan. Specific letter grades are not therefore internationally comparable.
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