OREANDA-NEWS. S&P Global Ratings said today it had revised the outlook on its long-term issuer credit ratings on Taiwan-based Bank SinoPac, SinoPac Holdings, and SinoPac Securities Corp. to positive from stable. At the same time, we affirmed the long-term and short-term issuer credit ratings on the three entities as well as our issue ratings on the entities' various unsecured subordinated debts. We also affirmed the Greater China regional scale ratings on SinoPac Holdings and raised the ratings on Bank SinoPac and SinoPac Securities to cnA+/cnA-1 from cnA/cnA-2 (see Ratings List).

"We revised the outlook on Bank SinoPac to positive to reflect our expectation that the bank is likely to enhance its capitalization to a stronger level if it continues to pursue a prudent capital policy and growth strategy over the next two years," said S&P Global Ratings credit analyst Yuhan Lan.

Bank SinoPac is the core banking subsidiary of the SinoPac group. The bank has undertaken several measures to strengthen its capitalization over the past few years. These include the retention of its earnings with no cash dividend payout for the past three years and several hybrid Tier 1 issuances that qualify under our definition of intermediate equity content. Bank SinoPac also received a New Taiwan dollar (NT$) 5 billion capital injection in early 2016 and is scheduled to divest its U. S. subsidiary.

"In addition, we believe Bank SinoPac has adopted a more prudent growth strategy to scale down the credit risks in its loan portfolio over the next two years, based on the bank's conservative view of the operating environment," added Ms. Lan.

As the result, Bank SinoPac's risk-adjusted capital (RAC) ratio before diversification improved to 10.04% at the end of 2015 from 9% in previous year. We believe Bank SinoPac's improved capitalization will strengthen the SinoPac group's overall credit profile, given the bank makes a dominant contribution to the group's capital and earnings.

The outlook revision on SinoPac Holdings and SinoPac Securities follows the outlook revision on Bank SinoPac, given that the credit ratings on the holding company and securities subsidiary move in tandem with the SinoPac group's overall credit profile.

The ratings on Bank SinoPac, SinoPac Holdings, and SinoPac Securities continue to reflect our assessment of the group's adequate capitalization as a good buffer for future growth as well as unexpected losses over the coming two years. We believe that the satisfactory business position of the group's core subsidiaries, including Bank SinoPac and SinoPac Securities, as well as the group's prudent capital policy and adequate liquidity with a diversified funding profile, continue to underpin the group credit profile.

We may raise the long-term ratings on Bank SinoPac, SinoPac Holdings, and SinoPac Securities if the bank can sustain its capitalization at a strong level, as measured by a RAC ratio before diversification above 10% for a sustained period. At the same time, we would expect the bank to maintain reasonable earning capacity and asset quality with adequate risk management.

Conversely, we may revise the outlooks back to stable if: (1) Bank SinoPac fails to sustain its capital at a strong level as measured by a RAC ratio before diversification consistently below 10%; (2) the bank's risk position heightens due to excessive business expansion, particularly in overseas markets with loosened risk controls; or (3) the bank's consolidated asset quality deteriorates.