Taishin ratings lowered

Fitch Ratings announced yesterday it would downgrade its appraisal of Taishin Financial Holding Co (台新金控) because of concerns over the deteriorating asset quality of the financial group's banking unit.

Taishin Financial is the nation's second-largest financial group by assets. Fitch Ratings downwardly revised Taishin Financial's Long-term Issuer Default Rating to "BBB-," National Long-term Rating to "A(twn)," Individual Rating to "C" and Subordinated Debt Rating to "A-(twn)."

"The unsecured consumer lending crisis weakened Taishin International Bank's (台新銀行) capitalization, asset quality and profitability," Fitch said in a statement released yesterday.

Taishin International is Taiwan's second-largest credit and cash card issuer with 3.86 million credit cards and 401,787 cash card in circulation last month, according to government data.

Roughly 36 percent of the bank's lending portfolio at the onset of the credit crisis consisted of high-yield unsecured consumer loans. Large expenses related to these loans led to a net loss of NT$3.8 billion last year, reversing the profits earned from 2001 through 2004.

The lender still is burdened with a total of NT$6.8 billion in non-amortized losses from bad loans and is expected to be forced to set aside further provisions to increase its loan reserve coverage.

Against this backdrop, Taihsin International would shift its focus to corporate and mortgage lending and wealth management, which should reduce the bank's credit risk profile in the future, Fitch said.

The ratings services provider said it expected the bank's interest income and credit costs to stabilize next year.

Taishin Financial yesterday made a filing to auction off NT$5.49 billion worth of bad debts, following its move to sell NT$9.5 billion of bad loans in July in a bid to clean up its asset quality.

Meanwhile, Fitch upgraded Taishin Financial's other banking subsidiary, Chang Hwa Bank (彰化銀行), in which the group holds a 25 percent stake, to reflect the lender's significant improvements in asset quality and capital strength following the financial group's NT$36.6 billion capital injection last year.

Fitch revised up Chang Hwa's Long-term Issuer Default Rating to "BBB+," National Long-term Rating to "AA-(twn)" and Individual Rating to "C/D." Chang Hwa's outlook was upgraded to positive from stable.

An eventual merger between Chang Hwa and Taishin International would make the combined bank's credit profile stronger and increase the likelihood of support by the state because of its greater significance -- a combined deposit market share of 8.2 percent -- in the banking system, Fitch said.

The two banks have complementary business scopes with Chang Hwa holding a strong franchise in corporate, small sized and medium sized enterprise lending and Taishin International possessing expertise in consumer banking, treasury markets and wealth management, Fitch said.