Fitch Ratings yesterday said it has upgraded the credit ratings of some medium-sized Taiwanese lenders on expectation of better returns in the coming two years although their profitability remains muted.
Fitch raised Cosmos Bank’s (萬泰銀行) ratings to “BBB+” from “BBB” as the bank continues to generate higher profitability in line with its overall risk profile, compared with similarly rated peers, the international ratings agency said in a report.
Sufficient internal capital generation is likely to support loan growth that is not overly aggressive and yet above the sector average, the report said.
However, Cosmos’ ratings will remain constrained by the potential increase in risk profile stemming from its aspiration to expand more rapidly by courting higher-risk borrowers in unsecured personal lending and by heading into corporate lending, previously not an area that it has focused on, the report said.
Fitch changed Bank of Taipei’s (大台北銀行) outlook to “stable” from “negative” after concluding that its risk profile has not increased materially following loan growth in last two years, the report said. Although its ability to internally generate capital is weak, the lender has a solid capitalization to support its modest loan growth, the report said.
Fitch placed EnTie’s (安泰銀行) ratings to “positive outlook” on expectations of a gradual build-up of capital buffer from the bank’s consistent and robust core earnings, which is comparable to peers, but a notch higher, the report said.
The ratings agency downgraded Taichung Commercial Bank’s (台中商銀) outlook to “negative” due to its deteriorating credit profile and its plan to expand its loan portfolio at a faster pace than the sector average, a development strategy that will pressure its already below-par capitalization, the report said.
Fitch affirmed all ratings of King’s Town Bank (京城銀行) given its steady credit profile, superior earnings and capital generation, prudently maintained asset quality and strong capitalization, the report said.
The ratings of these private banks are driven by their intrinsic credit profile, the report said, adding that their small deposit market share and lack of systemic importance mean the government is less likely to extend support in times of distress.
Fitch expects profitability of the banks to decline from last year’s levels, attributable mainly to rising provisioning risks.
“Credit costs will normalize going forward, from the benign cycle between 2010 and last year,” the report said.
Catalysts for improved profitability remain limited and the banks are vulnerable to a severe property market correction, as they have large property-related exposure, Fitch said.
The banks’ capitalizations vary greatly, but most lag behind peers in the Asia-Pacific region, Fitch said.