Sat, Aug 19, 2006 - Page 11 News List

Taiwan Country Ceiling raised to AA

By Amber Chung  /  STAFF REPORTER

Fitch Ratings upgraded its "Country Ceiling" given to Taiwan to reflect the nation's efforts to liberalize its foreign exchange policy and environment in recent years, the ratings firm announced late on Thursday.

Taiwan's Country Ceiling was lifted to AA from its previous AA-, Fitch said.

The nation's A+ sovereign rating remained unchanged in the meantime, it added.

"Taiwan's liberalization of its foreign exchange market in recent years contributed to the upgrade," Jonathan Lee (李信佳), a director at Fitch Ratings' Taiwan branch, told the Taipei Times in a telephone interview yesterday.

The upgrade would also help the upward revision of ratings on local companies and foreign companies' Taiwan-based subsidiaries in the future, Lee said.

Exchange risk

Country Ceilings capture the risk of exchange controls being imposed that would prevent or materially impede the private sector's ability to convert local currency into foreign currency and transfer to non-resident creditors, which is called transfer and convertibility (T&C) risk, according to the definition given by Fitch.

Increased integration of national economies into global production, trade and financial networks has reduced T&C risk. T&C and country risk generally remain more strongly correlated with sovereign risk and hence the Country Ceilings are "notched" based on the foreign currency rating of the sovereign risk, Fitch said.

Including Taiwan, the Country Ceiling of 40 countries out of the 99 that were on the list was also revised upwards.

The overall increase in the "notching" of Country Ceilings is approximately 50 basis points, or half of one "notch" on the rating scale, to an average rise of a little over one notch, according to Fitch.

Asian countries benefiting from the upgrade include Hong Kong's rise to the AAA level from AA and Korea's rise to AA from AA-.

Upgraded outlook

Consequently, Fitch upgraded the outlook on foreign currency Issuer Default ratings on HSBC in Hong Kong to "Positive" from "Stable" to reflecting the positive outlook of its parent HSBC Holdings Plc (rated AA), as the Country Ceiling is no longer a constraint.

HSBC was the only bank in an Asian country that received upward revision following the upgrades of Country Ceiling ratings for various countries, Fitch said.

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