Ratings firm upgrades Shinkong Bank

Taiwan Ratings Corp (中華信評), a local arm of Standard & Poor's Ratings Services, said yesterday that it had raised its credit ratings on Shinkong Commercial Bank (新光銀行) with a stable outlook.

The bank was awarded "twA+" for its long-term counterparty credit rating, up from "twA," and "twA-1" for short-term credit rating, up from "twA-2," the firm said in a statement released yesterday.

"The rating reflects the bank's increasing importance to Shin Kong Financial Holding Co (新光金控) following its merger with Macoto Bank (誠泰銀行), as well as its adequate liquidity and capitalization," the statement read.

The bank's importance within the Shin Kong group and its capacity to engage in key cross-selling synergies, especially in bancassurance, have been enhanced by its merger with smaller rival Macoto at the end of last year, it said.

Through the merger, the lender's distribution network has expanded to 108 branches nationwide from 28 outlets concentrated in central Taiwan, while its loan market share has also increased to 1.3 percent from 0.4 percent.

However, industrywide consumer bad loans have put pressure on Shinkong Bank's short-term profitability, as it previously aggressively expanded its consumer loan portfolio, Taiwan Ratings added.

Profitability is likely to remain constrained over the short to medium term, with continuously narrowing margins owing to pricing competition and rising provisioning expenses in a bid to further clean up consumer bad debts, it said.