OREANDA-NEWS. Fitch Ratings has today affirmed the ratings of Jih Sun Financial Holding Co., Ltd (JSH) and its subsidiary Jih Sun International Bank (JSIB). At the same time, Fitch has downgraded the ratings of Jih Sun Securities Corp., Ltd (JSS) and removed them from Rating Watch Negative (RWN). The Outlooks for all three entities are Stable.

Fitch placed JSS's ratings on RWN on 18 May 2016 because the agency was re-assessing the group's credit profile. A full list of rating actions is at the end of this rating action commentary.

KEY RATING DRIVERS

IDRS AND NATIONAL RATINGS

Fitch has affirmed the ratings on JSH and JSIB and downgraded JSS's ratings because the agency has shifted its approach to analyse the group's consolidated profile and assigned common ratings to all group entities. Previously, Fitch rated the group using JSS's ratings as the anchor for the group's ratings and notched each entity's rating from the anchor rating based on its credit profile. However, JSIB's significant size and contribution to the group leads to some limitations in that approach. JSIB accounts for about 85% of JSH's assets and JSS makes up around 15% of the holding company's assets.

Fitch's revised assessment of the group takes into account the high integration of the management within the group, the consolidated regulatory supervision, and fungibility of liquidity and capital within the group. Thus, all three entities have high correlation of default, and Fitch treats them as having one credit profile. The affirmation of JSH and JSIB, and downgrade of JSS reflect the growing asset and earnings contribution from JSIB to the group.

JSH's credit profile is weighed down by its overall modest franchise and limited pricing power. The group's franchise is smaller relative to most financial holding companies in Taiwan, with the group's brokerage franchise shrinking. The group's ratings are supported by its balance sheet strength and conservative risk appetite. JSH takes on less growth risk relative to peers. Its balance sheet expanded at CAGR of only 1.5% between 2011 and 2015. Its impaired ratio declined substantially to 1.82% at end-2015 from 4.66% at end-2013. JSH's capitalisation is strong, with its Fitch Core Capital Ratio higher than those of peers in Taiwan. However, its ROA excluding bad debt recoveries is lower than that of peers.

VIABILITY RATINGS

Fitch has assigned JSH a Viability Rating (VR) of 'bb+' to reflect the credit profile on a consolidated basis. Fitch has also upgraded JSIB's VR to 'bb+' from 'bb', and removed its Rating Watch Positive (RWP) to align it with other ratings of the group.

SUPPORT RATING AND SUPPORT RATING FLOOR

Fitch has simultaneously assigned a Support Rating of '5' and a Support Rating Floor of 'NF' (No Floor) to JSIB to reflect the low likelihood of sovereign support to the entity due to its small deposit franchise and modest systemic importance.

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, VIATBILITY RATINGS AND NATIONAL RATINGS

The group's IDRs, VRs, and National Ratings could be upgraded if the group can strengthen its franchise and sustainably improve its core profitability without significantly expanding its risk appetite.

A downgrade to the group's IDRs, VRs, and National Ratings could result from unexpected large proprietary trading losses by its securities business or significantly weakened loan book quality leading to impairment of capital.

SUPPORT RATING AND SUPPORT RATING FLOOR

The Support Rating and Support Rating Floor are sensitive to any change in assumptions around the propensity or ability of the Taiwan government to provide timely support to the bank.

SUBORDINATED DEBT

Any rating action on JSIB's National Long-Term Rating could trigger a similar move on its debt ratings

The full list of rating actions is as follows:

JSH

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 assigned at 'bb+'

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 upgraded to 'bb+' from 'bb'; removed from Rating Watch Positive

Subordinated debt (non-Basel III-compliant) rating affirmed at 'BBB+(twn)'

Subordinated debt (Basel III Tier 2 capital) rating affirmed at 'BBB(twn)'

Support Rating assigned at '5'

Support Rating Floor assigned at 'NF'

JSS

Long-Term Foreign Currency IDR downgraded to 'BB+' from 'BBB-'; removed from Rating Watch Negative; assigned Stable Outlook

Short-Term Foreign Currency IDR downgraded to 'B' from 'F3'; removed from Rating Watch Negative

National Long-Term Rating downgraded to 'A-(twn)' from 'A(twn)'; removed from Rating Watch Negative; assigned Stable Outlook

National Short-Term Rating downgraded to 'F2(twn)' from 'F1(twn)'; removed from Rating Watch Negative