Fitch Ratings has downgraded the credit outlook for CTBC Financial Holding Co (中信金控) and its main subsidiary, CTBC Bank (中信銀行), from “stable” to “negative,” as it expects the COVID-19 pandemic to weaken their operations, although their long-term issuer ratings remain stable at “BBB+” and “A” respectively.
The revision takes into account expected disruptions caused by the pandemic on Taiwan’s export-reliant economy, Fitch said.
The agency said that its ratings for CTBC Financial are two notches below those of CTBC Bank because it believes that regulators, in the event of stress, would prioritize protecting bank creditors over other entities.
CTBC Financial’s credit profile receives pressure from its high double-leverage ratio of 125 percent and the weaker credit profile of its life insurance unit, Taiwan Life Insurance Co, relative to CTBC Bank, Fitch said.
CTBC Bank’s impaired-loan ratio is expected to increase to about 2.2 percent this year, from 1.3 percent last year, while the bank’s core earnings are expected to cover impairment losses, but sector-wide pressure over loan growth, interest margin compression, falling fees and investment income, as well as lower credit card consumption, pose risks for earnings, Fitch added.
“We expect CTBC Bank’s common equity tier 1 ratio at 11.3 percent last year to remain under pressure in the coming few years due to the weaker profitability outlook, as well as the group’s relatively high dividend payout policy,” Fitch said.
Nevertheless, CTBC Bank’s profile, funding and liquidity position, supported by ample liquidity in financial markets, are quite strong and above the sector average, the agency added.
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