CTBC credit rating likely safe: Fitch Ratings

INSURER SUFFERS::However, the firm did downgrad the credit profile of CTBC’s Taiwan Life Insurance Co to ‘A-’ to reflect risks associated with expansions of scale

By Crystal Hsu  /  Staff reporter

Thu, Dec 07, 2017 - Page 12

The Financial Supervisory Commission’s (FSC) penalties against CTBC Financial Holding Co (中信金控) might not affect the conglomerate’s credit standing, Fitch Ratings said yesterday.

The commission on Tuesday fined CTBC Financial NT$10 million (US$333,222) and suspended its top manager for six months for providing bail money of NT$100 million to major shareholder Jeffrey Koo (辜仲諒).

Koo was charged with embezzlement in June last year.

“We are always conservative about corporate governance of companies with strong family ties and the punishment came as no surprise,” financial credit analyst Cherry Huang (黃嬿如) told a media briefing.

By comparison, family ties also control significant stakes in Fubon Financial Holding Co (富邦金控) and Cathay Financial Holding Co (國泰金控), but neither were found to have similar violations, she said, adding that middle management officials at CTBC Financial are competent and would maintain normal operations in the absence of its president Daniel Wu (吳一揆) and chief compliance officer Aaron King (金延華).

It is not the first time CTBC Financial has fallen under irregularity probes and the group has been able to pull through as seen by its stable market capitalization, she said.

Unless CTBC shares report excessive volatility, Fitch would keep CTBC Financial’s “A” credit rating unchanged, she added.

The international ratings agency earlier downgraded the credit profile of CTBC’s life insurance arm Taiwan Life Insurance Co (台灣人壽保險) to “A-” to reflect risks associated with expansions of scale, Fitch credit analyst Jenifer Chou (周筱娟) said.

Fitch expects Taiwan’s economy to grow at 2.1 percent for next year, the same as its projection for this year, hindered by high household leverage, an adverse demographic profile and mediocre sentiment about corporate investment.

Many Taiwanese households have mortgage burdens that could require higher borrowing costs once the central bank raises interest rates, Huang said.

That might not pose a serious problem in the short run as Fitch expects the central bank to hold interest rates steady next year, she added.

The low interest rate environment could continue to spur financing demand with outstanding loans likely to grow by between 3 and 4 percent next year, driven mainly by lending to small and medium-sized enterprises, Chou said.

Non-performing loans might total NT$37 billion this year, or eight basis points of the sector’s loans, including NT$10 billion related to troubled Ching Fu Shipbuilding Co (慶富造船), she said.

Credit losses would rise to NT$47 billion, or 10 basis points, if state-run lenders decide to write down all Ching Fu defaults this year, Chou said, adding that the damage is still controllable.

Bad loans constituted NT$55 billion, or 12.3 basis points, last year, Fitch said.