Fitch Ratings Inc reduced its outlook on eight Taiwanese securities companies from “stable” to “negative” to reflect heightened uncertainty in the operating environment amid the COVID-19 pandemic.
The companies are Oriental Securities Corp (亞東證券), Concord Securities Co (康和證券), Grand Fortune Securities Co Ltd (福邦證券), Shin Kong International Securities Co (新光證券), Ta Ching Securities Co (大慶證券), Tachan Securities Co (大展證券), Horizon Securities Corp (宏遠證券) and CL Securities Taiwan Co Ltd (台灣匯立證券).
The revision mirrored heightened uncertainty and increasing pressure on their earnings and profitability amid potential proprietary trading losses, Fitch said.
Downside risks have built up from increased capital market volatility, as well as lower revenue from brokerage activities, it said.
However, Fitch maintained its credit ratings for the securities houses, saying that they all have adequate capital buffers to withstand the immediate shock caused by the pandemic.
Rating downgrades could arise when firms incur unexpected trading losses from heavy exposure to market risk, credit losses linked to margin financing activity or a prolonged drop in brokerage revenue that weakens capital and funding positions, Fitch said.
Great Fortune, Shin Kong, Oriental and Concord are rated higher than the other four, because they have demonstrated an ability to sustain a competitive underwriting business backed by expertise and a strong pipeline, it said.
CL Securities and Horizon are rated at the lowest level in the group, because CL Securities is constrained by a high reliance on its business partner and largest client, CLSA Ltd, Fitch said.
Horizon’s ratings are based on the prospect of soft and volatile profitability, as well as its modest franchise and high risk appetite for trading, it said.
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