Fitch Affirms Mega International Commercial Bank at 'A-'/Stable
KEY RATING DRIVERS - IDRs, NATIONAL RATINGS, SUPPORT RATING, SUPPORT RATING FLOOR
Mega ICBC's IDRs and National Ratings take into account the extremely high probability of government support, if needed, as reflected in its Support Rating (SR) of '1' and Support Rating Floor (SRF) of 'A-'. This is underpinned by the state's controlling equity stake in the bank, the bank's significant systemic importance and its strong ties with the central bank.
RATING SENSITIVITIES - IDRs, NATIONAL RATINGS, SUPPORT RATING, SUPPORT RATING FLOOR
The IDRs, National Ratings, SR and SRF are sensitive to any rating action on the Taiwan sovereign (A+/Stable) and/or changes in perceived propensity of the Taiwan government to provide timely support to the bank. Fitch believes the latter is a less likely scenario in the near to medium term.
KEY RATING DRIVERS - VIABILITY RATING
The affirmation of the Viability Rating (VR) reflects the bank's strong franchise, strengthened loan loss reserves and sound balance sheet. These provide adequate buffer for its relatively concentrated property exposures and rising risk appetite in China. Fitch expects the risks associated with these two segments to remain manageable within the rating horizon. Mega ICBC's construction loans were unchanged in 2014 after increasing 16% in 2013, due to the softening outlook for the property market. The bank's average loan-to-value ratio remains reasonably conservative at around 55%.
Mega ICBC's China exposures grew rapidly off a low base, from 118% of Fitch core capital at end-2012 to 228% at end-1H14, compared with a sector average of 150%. The exposures are manageable in the near term as they are primarily focused on low-risk short-term trade finance, investment-grade Chinese banks and Taiwanese corporates operating in China that the bank has established credit knowledge of. Nonetheless, Fitch expects the bank's China risk appetite to continue to rise and increasingly become an important rating consideration.
RATING SENSITIVITIES - VIABILITY RATING
A weakened risk profile arising from a sharp increase in concentration risk, including in construction loans and China exposures, relative to its loss absorption buffer would pressure Mega ICBC's VR. Rating upside for the VR is limited as balance sheet strength is not likely to significantly improve in light of the bank's growth in higher-risk markets, primarily China.
A Credit Update on Mega ICBC will be available shortly at www.fitchratings.com.
The full list of rating actions is as follows:
- Long-Term IDR affirmed at 'A-'; Outlook Stable
- Short-Term IDR affirmed at 'F2'
- National Long-Term Rating affirmed at 'AA(twn)'; Outlook Stable
- National Short-Term Rating affirmed at 'F1+(twn)'
- Viability Rating affirmed at 'a-'
- Support Rating affirmed at '1'
- Support Rating Floor affirmed at 'A-'
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