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Fitch Ratings-Taipei/Hong Kong-09 February 2010: Fitch Ratings has today affirmed the ratings of Taiwan's Jih Sun group, namely Jih Sun Financial Holding Co., Ltd (JSH) and its wholly-owned subsidiaries, Jih Sun International Bank (JSIB) and Jih Sun Securities Corp., Ltd (JSS). The Outlooks on the Long-term Issuer Default Ratings (IDRs) and National Long-term ratings for these companies remain Stable. A detailed list of the rating actions is included at the end of this release.
The affirmations of Jih Sun group's ratings reflect the improvement in the group's overall financial profile, following the recapitalisation in April 2009. However, the ratings also consider the vulnerability of the group's asset quality arising from its banking franchise, JSIB (81.9% of group assets at end-Q309), given the tough domestic economic environment and the challenge it faces in turning its operations around. Fitch notes that JSH's management is planning to issue long-dated senior debt to enhance its funding structure and reduce its reliance on short-term borrowings, which have increased since the beginning of 2008's disruptive global financial crisis.
JSIB's ratings reflect its improving asset quality, albeit still weak, acceptable capitalisation and adequate liquidity. Following an ownership change in April 2009, a new management team joined JSH to revamp its credit risk management and clean up its loan portfolio. Despite the strengthening of JSIB's asset quality following the bank's stepped-up effort to charge-off bad loans in 2009, the bank's non-performing loan (NPL) ratio of 2.0% and loan loss reserve coverage of 47.8% at end-2009 remained relatively weak as compared to industry average. Furthermore, Fitch notes that some restructured loans at JSIB, in relation to the government debt relief programme, are not accounted in the reported NPLs. That said, JSIB's capitalisation is acceptable with Tier 1 ratio at 9.2% as of end-Q309, providing a cushion against potential bad loan losses in 2010. Liquidity profile of JSIB also remains adequate, as the bank deliberately increased its liquidity reserve (to 33% at end-Q309) and lowered its loan-deposit ratio (to 70.6% at end-Q309) to guard against a potential liquidity squeeze.
JSS's Individual rating mainly reflects its consistent profitability, manageable risk exposures, adequate capitalisation and satisfactory liquidity position. However, its IDR factors in the potential need to support its bank affiliate, JSIB, should the latest capital injection in April 2009 fail to brace up the bank's sagging financial strength. JSS reported a reasonably good bottom-line profitability with a return-on-equity (ROE) of 7.0% in 9M09, thanks to the earnings improvement in proprietary trading and brokerage income during the period. Fitch expects limited risk to arise from its investment portfolio as JSS has substantially decreased its proprietary trading positions, in which bonds and stock investments accounted for 29.2% and 11.6% of its total equity respectively at end-Q309. The company is adequately capitalised with capital adequacy ratio (CAR) of 477% as at end-Q309.
Established in 2002, JSH was the second smallest financial holding company in Taiwan with consolidated assets of TWD238.9bn at end-Q309. JSIB and JSS are JSH's two main operating subsidiaries, and JSH's major shareholders are Capital Target and Shinsei Bank, with respective equity interest of 26.1% and 30.5%. JSS is one of the larger securities companies in Taiwan, with a stock brokerage market share of 4.43% in 9M09. Meanwhile, JSIB is a small private bank in Taiwan with a deposits market share of 0.63% at end-November 2009.
JSH:
- Long-term Foreign Currency IDR affirmed at 'BB';
- Short-term Foreign Currency IDR affirmed at 'B';
- National Long-term rating affirmed at 'BBB+(twn)';
- National Short-term rating affirmed at 'F2 (twn)';
- Individual rating affirmed at 'D';
- Support rating affirmed at '5';
- Support Rating Floor affirmed at 'NF'; and
- Subordinated debt rating affirmed at 'BBB(twn)'
JSIB:
- Long-term Foreign Currency IDR affirmed at 'BB';
- Short-term Foreign Currency IDR affirmed at 'B';
- National Long-term rating affirmed at 'BBB+(twn)';
- National Short-term rating affirmed at 'F2 (twn)';
- Individual rating affirmed at 'D'; and
- Support rating affirmed at '3'.
JSS:
- Long-term Foreign Currency IDR affirmed at 'BB+';
- Short-term Foreign Currency IDR affirmed at 'B';
- National Long-term rating affirmed at 'A-(twn)' (A minus(twn));
- National Short-term rating affirmed at 'F2(twn)';
- Individual rating affirmed at 'C/D';
- Support rating affirmed at '5'; and
- Support Rating Floor affirmed at 'NF'.
Applicable criteria available on Fitch's website at www.fitchratings.com: "Global Financial Institutions Rating Criteria", dated 29 December 2009, "Rating Criteria for Securities Firms", dated 30 December 2009, and "Bank Holding Companies", dated 30 December 2009.
Contacts: Stephanie Liu, Cherry Huang, Jonathan Lee, Taipei, +886 2 8175 7600.
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.
Media Relations: Karen Cho, Hong Kong, Tel: +852 2263 9935,
Email:
karen.cho@fitchratings.com.
Additional information is available at www.fitchratings.com.
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