OREANDA-NEWS. Fitch Ratings has affirmed the ratings of Taishin Financial Holding Co., Ltd. (TFHC) and its subsidiaries, Taishin International Bank (TIB) and Taishin Securities Co., Ltd. (TSS). The Outlooks on all three entities are Stable. A full list of ratings is provided at the end of this commentary.

KEY RATING DRIVERS

IDRS, NATIONAL RATINGS AND VIABILITY RATINGS

The affirmation of TFHC is in line with the rating action on its principal banking subsidiary - TIB. TFHC's Long-Term Issuer Default Rating (IDR) is rated one-notch below that of TIB to reflect Fitch's view that TFHC may have a higher appetite for leverage and its double leverage ratio (DLR) could vary markedly with an appetite for opportunistic growth and acquisitions. The group's DLR was 117.5% at end-1H16.

Fitch believes capital is generally fungible between TFHC and TIB and assesses their capital profile on a consolidated basis. TFHC plans to issue preferred shares towards the end of 2016. Fitch sees this is to alleviate the group's funding pressure and potentially moderate its leverage. This would also enhance TIB's capitalisation to a more comparable level with similarly rated peers on a standalone basis.

TIB's affirmation and the Stable Outlook on its ratings reflect its superior profitability, which is underpinned by its strength in consumer finance and adequately managed risk profile. However, profitability could fall as margins continue to narrow, credit costs start picking-up and competition in wealth management and the credit card market intensifies. TIB's profitability decelerated in 1H16, generating an annualised return on assets of 0.8%. Its net interest margin and fee income declined modestly and provisioning costs increased, mainly due to selling of derivatives (Target Redemption Forward).

The ratings of TSS are aligned with its parent, TFHC, reflecting its status as a core subsidiary, the obligatory support from TFHC under Taiwan's Financial Holding Company Act and the inseparability of TSS's profile from that of TFHC.

SUPPORT RATING AND SUPPORT RATING FLOOR

TIB's Support Rating and Support Rating Floor reflect its moderate systemic importance and moderate probability of state support, if needed.

SUBORDINATED DEBT

TFHC's subordinated bonds are rated three notches below its National Long-Term Rating, reflecting the bonds' subordination status and going-concern loss-absorption features. The bond's rating has thus been affirmed due to the affirmation of TFHC's National Long-Term Rating. TIB's subordinated bonds are rated one notch below its National Long-Term Rating to reflect their subordinated status and the absence of the going-concern loss-absorption feature.

RATING SENSITIVITIES

IDRS, NATIONAL RATINGS AND VIABILITY RATINGS

TIB's IDRs, National Ratings and Viability Rating are sensitive to changes in Fitch's assessment of TIB's ability to sustain its consumer banking franchise while managing relatively high loan growth without undermining its risk profile. Rating pressure would also build if TFHC pursues large-scale acquisitions that lead to weakening of the group's capital buffer.

Any changes in TIB's ratings will affect the ratings of TFHC and TSS to a similar extent. TFHC's ratings will be aligned to those of TIB if TFHC establishes a record of prudent leverage use by maintaining its double leverage ratio consistently on par with or below those of sector peers and TIB's capitalisation improves to a level comparable with similarly-rated peers.

SUPPORT RATING AND SUPPORT RATING FLOOR

TIB's Support Rating and Support Rating Floor are sensitive to a change in Fitch's assumptions around the propensity or ability of the Taiwan government to provide timely support, if needed. An upgrade of Taiwan's sovereign rating (A+/Positive) is less likely to affect the bank's Support Rating or Support Rating Floor due to its modest systemic importance.

SUBORDINATED DEBT

Any rating action on TFHC and TIB could trigger a similar move on their debt ratings, as the subordinated debt ratings are broadly sensitive to the same considerations that might affect TFHC and TIB.

The rating actions are as follows:

Taishin Financial Holding Co., Ltd.

Long-Term IDR affirmed at 'BBB'; Outlook Stable

Short-Term IDR affirmed at 'F3'

National Long-Term Rating affirmed at 'A+(twn)'; Outlook Stable

National Short-Term Rating affirmed at 'F1(twn)'

Viability Rating affirmed at 'bbb'

Subordinated debt rating affirmed at 'BBB+(twn)'

Taishin International Bank

Long-Term IDR affirmed at 'BBB+'; Outlook Stable

Short-Term IDR affirmed at 'F2'

National Long-Term Rating affirmed at 'AA-(twn)'; Outlook Stable

National Short-Term Rating affirmed at 'F1+(twn)'

Viability Rating affirmed at 'bbb+'

Support Rating affirmed at '3'

Support Rating Floor affirmed at 'BB+'

Subordinated debt rating affirmed at 'A+(twn)'

Taishin Securities Co., Ltd.

Long-Term IDR affirmed at 'BBB'; Outlook Stable

Short-Term IDR affirmed at 'F3'

National Long-Term Rating affirmed at 'A+(twn)'; Outlook Stable

National Short-Term Rating affirmed at 'F1(twn)'