OREANDA-NEWS. S&P Global Ratings said today it had revised its rating outlook on CTBC Financial Holding Co. Ltd. (CTBC FHC) to stable from positive and affirmed the issuer credit ratings at 'BBB/A-3'. At the same time, we lowered the Greater China regional scale ratings on CTBC FHC to 'cnA/cnA-2' from 'cnA+/cnA-1'.

"The outlook revision on Taiwan-based CTBC FHC reflects our expectation that the group's capitalization will deteriorate to satisfactory from the current strong level in the coming two years," said S&P Global Ratings credit analyst Patty Wang. "We believe the capitalization of the group's life insurance arm, based on S&P Global Ratings' insurance capital model assessment, moderates the strong capital at the group's banking arm, CTBC Bank Co. Ltd."

The life insurance arm has exerted high growth in the first six months of 2016, weakening the group's consolidated capitalization. We expect this growth momentum to continue over the next two years. The group's capitalization is also sensitive to cash dividend distribution at the holding company level.

"The ratings on CTBC FHC largely reflect CTBC Bank's stand-alone credit profile, given the dominate role of the bank within the group, wherein it accounts for about 75% of the group's total assets," added Ms. Wang. "However, the weaker capitalization of the group's life insurance arm moderates the strength of its banking operations. The ratings on CTBC FHC also reflect a degree of subordination to its operating subsidiaries."

We could raise the consolidated group profile and consequently the rating on CTBC FHC, if the group can maintain its capitalization at a strong level via a prudent business strategy and good earnings retention.

Conversely, we could lower the group credit profile and consequently the rating on CTBC FHC, if the group and its subsidiaries pursue overly aggressive expansion without adequate capital planning or a risk management mechanism to manage its fast-growing business, which accordingly dilutes the risk position or weakens the capitalization of the bank subsidiary or the overall group.