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Fitch Ratings-Taipei/Hong Kong/Singapore-27 November 2009: Fitch Ratings has today affirmed Taiwan's King's Town Bank's (KTB) Long-term foreign currency Issuer Default Rating (IDR) at 'BB+', Short-term foreign currency IDR at 'B', National Long-term Rating at 'A-(twn)', National Short-term Rating at 'F1(twn)', Individual rating at 'C/D', Support rating at '5' and Support Rating Floor at 'NF'. The Outlook is Stable.
KTB's ratings consider its moderate risk appetite which renders modest profitability, satisfactory liquidity, sound capitalisation and adequate asset quality, and also take into account its small franchise and limited diversity in terms of geography and revenue mix. KTB positions itself as a boutique regional financial services provider, aiming to establish a solid market foothold in southern Taiwan. As part of the bank's re-engineering, it has been more selective in pursuing asset growth in order to minimise potential credit risks. The bank is working to reduce its reliance on the traditional lending business by expanding its wealth management business and venturing into project finance (related to local government infrastructure projects).
KTB managed to avoid making a loss in the first nine months of 2009 despite the challenging operating environment. Fitch expects an improvement in KTB's earnings in 2010, supported by a slight improvement in core earnings, although credit costs could rise. KTB's asset quality remains adequate; its NPL ratio was satisfactory at 1.8%, while provision cover was reasonably strong at 86.3% (industry average: 78.6%) of NPLs at end-Q309.
Although restructured loans of some financially weak corporations are not included in reported NPLs, Fitch believes the bank has the financial capacity to absorb potential credit losses. KTB has maintained reasonably sound capitalisation, with a Tier 1 ratio of 11.3% at end-Q309. The bank's liquidity profile is satisfactory, supported by its stable and favourable funding base. KTB also maintained a reasonably low loans/deposits ratio of 70.8% at end-Q309 (industry average: 76.5%).
Founded in 1948, KTB is a privately-owned bank with a deposit market share of 0.6% at end-Q309. The Tsai family and their investment associates are the largest shareholder of KTB, with an overall stake of 30.9% in the bank. The family also owns the publicly-listed King's Town Construction, a Kaohsiung-based construction company.
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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