OREANDA-NEWS. Fitch Ratings has affirmed the 'BBB+' Long-Term Foreign-Currency Issuer Default Rating (IDR) ratings of Taiwan-based Yuanta Financial Holding Co., Ltd. (YFHC) and its subsidiaries, Yuanta Securities Co., Ltd. (YS) and Yuanta Commercial Bank Co., Ltd. (YCB). The Outlook is Stable. At the same time, Fitch removed the Rating Watch Negative (RWN) on the three entities. A full list of rating actions is at the end of this commentary.

Fitch placed the group's ratings on RWN on 19 August 2015 following YFHC's announcement to acquire all the shares of Ta Chong Commercial Bank (TCB), as the acquisition would potentially dilute the group's financial strength and involve execution risk. YFHC completed its acquisition of TCB in 22 March, 2016 and plans to consolidate TCB and YCB into one Yuanta-branded bank by first half of 2017.

KEY RATING DRIVERS

IDRS, NATIONAL RATINGS AND SENIOR DEBT

The removal of ratings from RWN and the consequent affirmation of the rating on the group reflects its enlarged franchise and sound financial standing, which is commensurate with the group's IDRs. Fitch deems the group companies as highly correlated and sharing the same credit profile, hence all three companies are rated at the same level.

Fitch assessed the group using the common ratings approach, finding that the group had a diversified business model, with the securities and banking business representing 42% each of YFHC's total equity investment at end-1Q16, management's high integration within the group, consolidated regulatory supervision and liquidity and capital fungibility within the group.

The group's ratings reflect its improving domestic and regional franchise, sound internal capital generation and the subsidiaries' adequate capital position. The banking business had a pro-forma 9.4% common equity Tier 1 ratio at end-2015 and the securities business had a capital adequacy ratio of more than 350%. Fitch expects steady profitability and restrained asset growth to underpin the group's capital, with modest capital usage among its principal subsidiaries.

Group asset quality is in line with similarly rated domestic peers, with an impaired loan ratio of 1.6% and coverage ratio of more than 100% at end-1Q16. Excluding the legacy portfolio from Yuanta Securities Korea Co., Ltd, the pro-forma impaired loans ratio at banking business would fall to 1.1%, with a coverage ratio of 136%. The group has a conservative market-risk appetite and consistently manages its value-at-risk below 0.5% of YFHC's equity, its self-imposed threshold.

YCB's senior unsecured bonds are rated at the same level as its National Long-Term Rating of 'AA-(twn)', reflecting the bonds' relative probability of default within Taiwan's national scale.

VIABILITY RATING

Fitch has assigned YFHC a Viability Rating of 'bbb+' to reflect its credit profile on a consolidated basis and has upgraded YCB's Viability Rating to 'bbb+' from 'bb+' to align it with the group's rating.

SUPPORT RATING AND SUPPORT RATING FLOOR

Fitch has assigned YCB a Support Rating of '3' and a Support Rating Floor 'BB+' to reflect its moderate systemic importance and moderate probability of state support, if needed, based on its aggregate 3% deposit market share.

RATING SENSITIVITIES

IDRS, VIABILITY RATING, NATIONAL RATINGS AND SENIOR DEBT

Negative ratings action could result from a weakened risk profile, which could arise from overly aggressive acquisitions that significantly dilute funding and capitalisation or from excessive risk-taking for yield that compromises underwriting standards and risk controls.

A rating upgrade is less likely, as the group is still developing its regional franchise and business diversity and has only moderate pricing power in its main operating segments; a higher-rated international peer would have a more established business model and strategic objectives, alongside refined management quality. Any rating action on YCB could trigger a similar move on the rating of its debt.

SUPPORT RATING AND SUPPORT RATING FLOOR

YCB's Support Rating and Support Rating Floor are sensitive to any change in Fitch's assumptions around the propensity or ability of the Taiwan government (A+/Positive) to provide it with timely support to the bank. Its Support Rating and Support Rating Floor may also be negatively affected if there is a significant and sustained decline in YCB's deposit market share.

The rating actions are as follows:

Yuanta Financial Holding Co., Ltd.:

Long-Term Foreign-Currency IDR affirmed at 'BBB+'; removed from RWN, Outlook Stable

Short-Term Foreign-Currency IDR affirmed at 'F2'; removed from RWN

National Long-Term Rating affirmed at 'AA-(twn)'; removed from RWN, Outlook Stable

National Short-Term Rating affirmed at 'F1+(twn)'; removed from RWN

Viability Rating assigned at 'bbb+'

Yuanta Securities Co., Ltd.:

Long-Term Foreign-Currency IDR affirmed at 'BBB+'; removed from RWN, Outlook Stable

Short-Term Foreign-Currency IDR affirmed at 'F2'; removed from RWN

National Long-Term Rating affirmed at 'AA-(twn)'; removed from RWN, Outlook Stable

National Short-Term Rating affirmed at 'F1+(twn)'; removed from RWN

Yuanta Commercial Bank Co., Ltd.:

Long-Term Foreign-Currency IDR affirmed at 'BBB+'; removed from RWN, Outlook Stable

Short-Term Foreign-Currency IDR affirmed at 'F2'; removed from RWN

National Long-Term Rating affirmed at 'AA-(twn)'; removed from RWN, Outlook Stable

National Short-Term Rating affirmed at 'F1+(twn)'; removed from RWN

Viability Rating upgraded to 'bbb+' from 'bb+'

Support Rating assigned at '3'

Support Rating Floor assigned at 'BB+'

Senior unsecured debt affirmed at 'AA-(twn)'; removed from RWN