Two ratings firms differed on -Chinatrust Financial Holding Co’s (中信金控) credit outlook following the company’s decision last week to acquire MetLife Taiwan Life Insurance Co (大都會人壽).
Taiwan Ratings Corp (中華信評), the local arm of Standard & Poor’s, last week affirmed its credit ratings for Chinatrust Financial and its core subsidiary Chinatrust Commercial Bank (中信銀) and maintained “stable” outlooks on their long-term ratings.
The ratings company attributed the ratings decisions to the small size of funding involved, because the acquisition is valued at US$180 million (NT$5.3 billion).
“The impact of the deal is -manageable, given the group’s financial strength,” Taiwan Ratings said in a statement. “We expect the acquisition to proceed smoothly without bringing integration risks or other contingent costs.”
The ratings firm doesn’t expect Chinatrust to pursue overly aggressive expansion and financial policies. Consequently, the group’s overall capitalization should remain at an adequate level, the statement said.
However, Moody’s Investors Service held a different view, saying the acquisition is credit negative for Chinatrust because it is incorporating a subsidiary with a weaker market position and weaker capital adequacy and profitability.
MetLife Taiwan’s capitalization, as indicated by its 205 percent risk-based capital ratio in December, is weak and marginally above the regulatory minimum of 200 percent, said Sally Yim (嚴溢敏), senior analyst for financial institutions at Moody’s.
“Although Chinatrust said it doesn’t expect to inject capital into MetLife Taiwan in the near term, we believe it may need to recapitalize the company to support its business growth,” Yim said.
While the acquisition will add to Chinatrust Financial’s earnings diversification, allowing its banking arm to cross-sell bank products through its life insurance subsidiary, the benefit will be limited because MetLife Taiwan has no agency force, Yim said.
Chinatrust Financial’s main business is banking conducted through its banking subsidiary, which made up 93 percent of the group’s total earnings last year.
The acquisition, which still needs regulatory approval, is also credit negative for the local life insurance industry, according to Moody’s.
“We believe Chinatrust Bank may decide not to sell competitors’ products as its own life business grows bigger,” Yim said. “Insurers will need to strengthen their own agency channels or source their business to other banks to recoup the lost business.”
Bancassurance is a key distribution channel in Taiwan, contributing 63.2 percent of first-year premiums in 2009. Chinatrust Bank is one of the life insurers’ largest bank partners.
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