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Fitch Ratings-Taipei/Hong Kong/Singapore-24 August 2009: Fitch Ratings has today affirmed the ratings of First Financial Holding Company Limited (First Holding) and First Commercial Bank (Taiwan) (First Bank). Simultaneously, the agency has assigned ratings to First Securities Inc (First Securities) and First Holding's outstanding issuance of subordinated debts. First Bank and First Securities are wholly-owned subsidiaries of First Holding.
The rating affirmations are based on the group's strong name in the Taiwanese financial industry, institutionalised risk management and good financial profile, which mitigate risks arising from the unfolding economic crisis and potential policy intervention due to the government's dominant ownership. The National ratings of First Securities are mainly driven by the obligatory support of its parent First Holding, while First Securities' Individual rating reflects its weaknesses which include volatile profitability and a relatively small brokerage franchise, and incorporates strengths such as sound capitalisation, a liquid balance sheet and a prudent risk culture.
First Holding's long-term plan is to become a leading financial institution in the Greater China market. In the short term, the group aims to improve its overall revenue diversity by enlarging the scale of its non-bank subsidiaries through organic growth and acquisition. First Holding is keen on expanding its overseas franchise (particularly in China) and strives to enhance core profitability by exploiting its entrenched customer base and cross-selling opportunities within the group.
First Holding reported declined profitability in 2008 and H109 as the global financial crisis took its toll on Taiwan and throughout the region. Pre-provision profits fell noticeably due to a decrease in fees and a drop in gains from treasury operations and proprietary trading. Meanwhile, an increase in provision charges weighed on the group's bottom-line profits. Nevertheless, Fitch expects First Holding to deliver moderate net profits in 2009, supported by its well-managed asset quality despite a continued challenging operating environment amid the unfolding economic slowdown.
The group grew its assets portfolio conservatively in 2008-H109 to weather the challenging market conditions. Loans at its main operating subsidiary, First Bank, grew by a mere 3% in 2008-H109, with loans to government agencies and mortgages accounting for 87% of the increase. First Bank maintained a higher weighting of corporate loans in its portfolio - 68% of the total at end-H109, while the rest of the loan book was mainly mortgages (29%). First Bank's loan book showed the first signs of deterioration in Q408 as the bank suffered from its exposure to troubled Icelandic and US financial institutions. In 2009, if the economic recession proves prolonged, First Bank's asset quality could come under further pressure. Nevertheless, Fitch believes that a sudden and severe deterioration is less likely, given First Bank's improved credit risk management procedure and modest loan growth in recent years.
First Holding has low leverage and its subsidiaries are adequately capitalised. First Bank's Tier 1 and capital adequacy ratio (CAR) were 7.1% and 10.9%, respectively, at end-2008, similar to those at end-2007. Meanwhile, First Securities' CAR increased to 458% at end-March 2009 from 387% at end-2007 as trading investments and the margin lending balance shrank amid the market downturn.
The group's liquidity profile appears satisfactory. First Holding's liquid assets and dividend inflows from subsidiaries comfortably cover its standalone short-term liabilities and interest and operating expenses as well as the group's dividend payouts. Moreover, First Bank is a major liquidity provider in Taiwan's interbank markets thanks to its large domestic deposit-taking franchise. First Securities also has a liquid balance sheet with a current ratio of 155%-183% in 2005-Q109.
First Holding was incorporated in January 2003 through a 100% share swap with First Bank. It was the sixth-largest of 15 domestic financial holding groups by consolidated assets (TWD1.86trn) at end-March 2009. Government agencies maintained dominant ownership (around 32.45%) of First Holding and appointed the majority of the board of directors. First Bank was created in 1899 and is one of the major state-affiliated money-centre commercial banks in Taiwan, with one of the most extensive branch networks. Meanwhile, First Securities was established in 1988 and became a wholly owned subsidiary of First Holding in July 2003. At end-May 2009, First Securities was ranked 17th by equity brokerage market share among around 80 domestic securities firms and had 1.7% of Taiwanese stock brokerage.
The ratings are as follows:
First Holding:
- 'BBB+' Long-term foreign currency IDR/Stable Outlook;
- 'F2' Short-term foreign currency IDR;
- 'AA-'(AA minus(twn)) National Long-term rating/Stable Outlook;
- 'F1(twn)' National Short-term rating;
- 'C' Individual;
- '5' Support;
- 'NF' Support Rating Floor; and
- 'A+(twn)' Subordinated debt rating.
First Bank:
- 'BBB+' Long-term foreign currency IDR/Stable Outlook;
- 'F2' Short-term foreign currency IDR;
- 'AA-'(AA minus(twn)) National Long-term rating/Stable Outlook;
- 'F1(twn)' National Short-term rating;
- 'C' Individual;
- '2' Support; and
- 'BBB+' Support Rating Floor.
First Securities:
- 'A+(twn)' National Long-term rating/Stable Outlook;
- 'F1(twn)' National Short-term rating;
- 'D' Individual; and
- '2' Support.
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.
Contacts: Sophia Chen, Stephanie Liu, Jonathan Lee, Taipei, +886 2 8175 7600.
Media Relations: Lisa Lim, Singapore, Tel: +65 6796 7214,
Email:
lisa.lim@fitchratings.com.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
