Fitch Ratings yesterday revised downward its outlook ratings on Bank SinoPac (永豐銀行) and Taichung Commercial Bank (台中商銀), two of four local banks with exposure to the Private Equity Management (PEM) Group.
Along with Standard Chartered Bank (Taiwan) Ltd (渣打銀行) and Hua Nan Commercial Bank (華南銀行), Bank SinoPac and Taichung Commercial Bank have said they would buy back from customers products linked to PEM, which is under investigation for fraud in the US.
Fitch yesterday lowered the two local banks’ ratings from stable to negative.
The success of the buybacks is uncertain given the complexity of the alleged PEM fraud and opaque market values, Fitch said yesterday.
The ratings agency said it believed the recoveries would be limited and take considerable time. It therefore assumed a zero-percent recovery rate in estimating the impact on the four banks.
Bank SinoPac, Hua Nan Commercial Bank and Taichung Commercial Bank said their exposure to PEM would total NT$4.8 billion (US$146 million), NT$6.8 billion and NT$2.3 billion respectively, while Standard Chartered has not disclosed the extent of its exposure.
“In addition to its PEM Group exposure, the rating action on Bank SinoPac reflects the bank’s notably weakened internal capital generation due to sharply compressed interest margins on its mortgage-concentrated loan portfolio,” the agency said in a press statement yesterday, adding that Taichung Commercial Bank faces similar challenges.
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