OREANDA-NEWS. Fitch Ratings has affirmed Taiwan-based IBT Securities Co., Ltd.'s (IBTS) National Long-Term Rating at 'BBB+(twn)' and National Short-Term Rating at 'F2(twn)'. The Outlook is Stable.

KEY RATING DRIVERS - National Ratings

IBTS's ratings reflect its strategic importance to its parent Industrial Bank of Taiwan (IBT), which owns 94.8% of IBTS. Fitch expects the parent to maintain a high propensity to support IBTS, underpinned by its managerial control and operational integration. On a standalone basis, IBTS's balance sheet remained healthy, despite its small franchise.

Fitch expects IBTS's profitability to remain susceptible to its proprietary trading activities. The company reported a small loss (return on assets: -0.3%) at end-2014, as trading losses from a market correction in 2H14 offset the increase in brokerage profits. Management continued to restrain its interest-rate exposure by keeping a small position in highly rated bonds that have short durations. In addition, the company has set a low limit on the size of its bond portfolio; all of which helped contain its market risk.

Fitch considers IBTS's capital reduction of TWD1.4bn (30% of total equity) to be in line with the parent's strategy to optimise capital efficiency at the group level. Its moderate business expansion and reduced market risk appetite also cut the demand for capital. In addition, IBT is ready to support its subsidiary's operation, if necessary. IBTS's liquid balance sheet mitigates its funding risk. Its low encumbered assets and the funding facility from its parent also suggest sufficient financial flexibility.

Despite the capital reduction, IBTS continues to sustain its underwriting capability, including equity/debt placements and financial consulting, which continue to support IBT's corporate banking franchise and deepen the group's service offerings. IBTS's expertise in capital markets and strong synergy with IBT has reinforced its significance within the group.

RATING SENSITIVITIES - National Ratings

IBTS's ratings move in tandem with IBT's credit profile and potential support. A ratings upgrade may be likely if IBTS becomes more strategically important to the group and forms a core part of the group. Negative rating action could result from IBT's weakened financial strength. Any weakening in the links between IBTS and its parent, including ownership dilution and reduced strategic importance of IBTS within the group, would pressure its ratings.

IBTS is ranked 27th by equity among 45 fully licensed securities firms in Taiwan.