OREANDA-NEWS. Fitch Ratings has today affirmed the ratings on six Taiwanese securities companies, namely Oriental Securities Corporation (Oriental), Concord Securities Corporation (Concord), Ta Chong Securities Co., Ltd. (Ta Chong), Ta Ching Securities Co., Ltd. (Ta Ching), Tachan Securities Co., Ltd (Tachan), and Horizon Securities Co., Ltd. (Horizon). At the same time, Fitch has maintained Concord's ratings on Negative Outlook. The Outlooks of other five entities are Stable.

Fitch has placed the ratings of Jih Sun Securities Corp., Ltd (Jih Sun) on Rating Watch Negative (RWN), and affirmed most of the ratings of Jih Sun Financial Holding Co., Ltd (JSFH) and Jih Sun International Bank (JSIB). A full list of rating actions is at the end of this rating action commentary.

KEY RATING DRIVERS

IDRS and NATIONAL RATINGS
Oriental, Concord, Ta Chong, Ta Ching, Tachan and Horizon are the smaller securities firms in Taiwan. They face bigger challenges than their larger domestic peers from negative structural change in Taiwan's brokerage market. This is because they lack economies of scale in brokerage, and rely on proprietary trading for profit.

We expect the smaller firms to report net losses more frequently. Pressure on brokerage-related revenue continues due to a sustained decline in market turnover and commission rates. Trading profits are challenging against heightened, unexpected market volatility. That said, we believe the overall credit profile of the smaller firms rated by Fitch remains generally in check, underpinned by their healthy balance sheets that exhibit strong loss-absorption and adequate liquidity.

Oriental, rated highest among the smaller companies at 'BBB-', demonstrates consistently strong capital strength, an intention to limit use of debt borrowing, and a restrained appetite for trading. Nevertheless, the company has a trading-focused business model and a weaker risk-adjusted return among local peers.

Concord is rated 'BB+', reflecting its relatively diversified franchise among similarly sized local peers, although it has below-average capital and liquidity positions due to higher reliance on short-term repos to fund its larger, long-term bond investments. This has left its credit profile more vulnerable to stock-market volatility and to market and liquidity risks, as reflected in the Negative Outlook.

The ratings affirmations of Ta Chong, Ta Ching and Tachan at 'BB' or 'BBB+(twn)' and Horizon at 'BBB(twn) are based on their generally stable credit profiles, which are underpinned by their consistently low leverage and Fitch's expectation of their ability to maintain sound capital buffers, liquid portfolios and high-quality collateral backing repo funding. That said, Horizon is rated lower, taking into account its weaker and more volatile earnings, and higher market risk appetite.

Jih Sun's ratings are placed on RWN because the agency is re-assessing the group's credit profile. It is highly likely that we would shift our approach to analyse the group's consolidated profile and assign common ratings to all group entities - including Jih Sun, JSFH and JSIB - instead of currently using Jih Sun as an anchor to the ratings of JSFH and JSIB. This is based on our belief that all three entities have a high correlation of default, considering that they are likely to extend support to one another. The downward pressure on Jih Sun comes from JSIB being a potential drag on the group's overall profile, particularly in terms of JSIB's weaker franchise - despite adequate asset quality and capitalisation.

VR: only for JSIB
JSIB's VR would be driven by the consolidated profile of the group, based on the potential new approach mentioned earlier. JSIB's VR is on Rating Watch Positive (RWP) as we expect the bank to benefit from ordinary support from the group. The bank is likely to benefit in particular from the group's overall capital and funding fungibility and sharing of the Jih Sun's stronger franchise and better internal capital generation.

SUBORDINATED DEBT
JSIB's non-Basel III-compliant subordinated bond is rated one notch below the issuer's National Long-Term Rating to reflect its subordinated status and the absence of going-concern loss-absorption features. JSIB's Taiwanese Basel III Tier 2 (B3T2) capital is rated two notches below the issuer's anchor rating, comprising zero notching for non-performance risk and two notches for loss severity. Wider notching than Fitch's base case of one notch reflects the poor recovery prospects for Taiwanese B3T2 debt at the point of non-viability or government receivership. Taiwan's authorities would only move a bank into insolvency administration when it reaches a very low capital level or a 2% capital adequacy ratio, reducing the recovery prospects for B3T2 debt. The above notching practices are in accordance with Fitch's criteria on rating bank regulatory capital and similar securities.

RATING SENSITIVITIES

IDRS AND NATIONAL RATINGS
For Concord, triggers for a ratings downgrade include rising risk appetite for stock trading and further significant expansion in bond investments, which lead to a weakened capital profile. An Outlook revision to Stable is likely if Concord could manage to moderate its appetite for trading, reduce its leverage and strengthen its capitalisation.

Ratings upside for the other smaller securities firms is limited, unless they demonstrate a sustained improvement in earnings quality - most likely through a larger and more diversified franchise - which is unlikely in the short to medium term. Conversely, sustained weak earnings and a sharp increase in risk appetite resulting in significant deterioration in capitalisation may trigger negative rating action.

Under the common rating approach that is to be taken, the IDRs and National Ratings of Jih Sun, JSFH and JSIB would be most sensitive to the group's ability to maintain its securities franchise to underpin the group's overall credit profile.

VR: only for JSIB
Under the new approach, JSIB's VR would move in tandem with the group's overall long-term IDR. Any change in the assessment of the consolidated profile of the group is to trigger similar rating action.

SUBORDINATED DEBT
Any rating action on JSIB could trigger a similar move on its debt ratings.

The rating actions are as follows:

Jih Sun
Long-Term Foreign Currency IDR at 'BBB-'; placed on RWN
Short-Term Foreign Currency IDR at'F3'; placed on RWN
National Long-Term Rating at 'A(twn)'; placed on RWN
National Short-Term Rating at 'F1(twn)'; placed on RWN

JSFH:
Long-Term Foreign-Currency IDR affirmed at 'BB+'; Outlook Stable
Short-Term Foreign-Currency IDR affirmed at 'B'
National Long-Term Rating affirmed at 'A-(twn)'; Outlook Stable
National Short-Term Rating affirmed at 'F2(twn)'

JSIB:
Long-Term Foreign-Currency IDR affirmed at 'BB+'; Outlook Stable
Short-Term Foreign-Currency IDR affirmed at 'B'
National Long-Term Rating affirmed at 'A-(twn)'; Outlook Stable
National Short-Term Rating affirmed at 'F2(twn)'
Viability Rating at 'bb'; placed on RWP
Subordinated debt (non-Basel III-compliant) rating affirmed at 'BBB+(twn)'
Subordinated debt (Basel III Tier 2 capital) rating affirmed at 'BBB(twn)'

Oriental:
Long-Term Foreign-Currency IDR affirmed at 'BBB-'; Outlook Stable
Short-Term Foreign-Currency IDR affirmed at 'F3'
National Long-Term Rating affirmed at 'A(twn)'; Outlook Stable
National Short-Term Rating affirmed at 'F1(twn)'

Concord:
Long-Term Foreign-Currency IDR affirmed at 'BB+'; Outlook maintained on Negative
Short-Term Foreign-Currency IDR affirmed at 'B'
National Long-Term Rating affirmed at 'A-(twn)'; Outlook maintained on Negative
National Short-Term Rating affirmed at 'F2(twn)'

Horizon:
National Long-Term Rating affirmed at 'BBB(twn)'; Outlook Stable
National Short-Term Rating affirmed at 'F3(twn)'

Ta Chong:
National Long-Term Rating affirmed at 'BBB+(twn)'; Outlook Stable
National Short-Term Rating affirmed at 'F2(twn)'

Ta Ching:
National Long-Term Rating affirmed at 'BBB+(twn)'; Outlook Stable
National Short-Term Rating affirmed at 'F2(twn)'

Tachan:
Long-Term Foreign-Currency IDR affirmed at 'BB'; Outlook Stable
Short-Term Foreign-Currency IDR affirmed at 'B'
National Long-Term Rating affirmed at 'BBB+(twn)'; Outlook Stable
National Short-Term Rating affirmed at 'F2(twn)'