Standard & Poor’s Ratings Services (S&P) yesterday placed the Industrial Bank of Taiwan (IBT, 台灣工銀) on CreditWatch with negative implications after a significant asset impairment at the bank’s securities unit.
The negative outlook “reflects uncertainties on the IBT group’s capitalization, risk management policies and asset quality following the announcement of significant asset impairment at the bank’s 93.66 percent-owned subsidiary, IBT Securities Co [工銀證券],” credit analyst Chris Lee (李明泰) said in a press release yesterday.
The Financial Supervisory Commission, which has launched an investigation into the bond default, said yesterday it would announce its conclusions in the next few days. On Friday, IBT Securities reported a default on its bonds with resell agreements when two counterparties failed to repay debts of NT$2.8 billion (US$84.6 million), the bank’s press statement said on Monday.
The potential loss, assuming no recovery, would account for 37 percent of the securities arm’s equity or 7 percent of the parent bank’s consolidated shareholders’ equity at the end of June, S&P said.
IBT is setting aside NT$1.33 billion in bad-loan provisions and said the default would have less impact than expected on the securities arm’s balance sheets this year since the subsidiary’s projected net worth would be NT$5.692 billion, or NT$9.5 per share, with a 605 percent capital adequacy ratio (CAR), by the end of the year.
The parent bank, however, could incur a total of NT$1.38 billion in losses this year even though its bad-loan ratio will remain below 0.82 percent with a 12 percent Bank for International Settlements.
IBT president Henry Peng (彭文桂) said he was confident about the bank’s finances given the losses were “bearable,” the bank’s statement said.
Analysts were not as optimistic.
“IBT’s consolidated adjusted equity ratio was 13 percent at the end of June, which provides an adequate buffer against its riskier venture capital book and strategic investment,” Lee said. “However, additional deterioration of asset quality at the group level, either due to the group’s looser risk controls or a more-than-expected volatile global/local financial market, could further pressure the group’s capitalization.”
Fitch Ratings had lowered its outlook on IBT Securities from stable to negative on Monday, given its substantially weakened capitalization and potential further losses amid a prolonged equity market slump, its statement said.