OREANDA-NEWS. Fitch Ratings has affirmed Taiwan-based Mega International Commercial Bank Company Limited's (Mega ICBC) Long-Term Issuer Default Rating (IDR) at 'A-' and its National Long-Term Rating at 'AA(twn)'. The Outlook is Stable. A full rating breakdown is provided at the end of the commentary.

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 and sound balance sheet, which provides adequate buffer for its relatively concentrated property exposures and rising risk appetite in China. Growth in construction loans was flat in 2014, while China exposures grew rapidly from 118% of Fitch core capital at end-2012 to 210% at end-2014, compared with a sector average of 160%-170%.

China 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. The growth in China exposures will moderate in order to adhere to a regulatory cap at 100% of equity. Fitch, however, believes the bank is likely to be more aggressive than peers in growing its China exposures should the regulator raise the cap.

The bank's planned rights issue of around TWD8bn in 1H15 aims to strengthen its capitalisation within the stricter Basel III capital regime. Fitch estimates Mega ICBC's Fitch core capital ratio to slightly rise to around 10.5% after the rights issue from 10.2% at end-1H14, comparable to similarly rated regional peers. The bank would require a stronger risk absorption buffer should it continue to expand in higher-risk emerging markets, including China.

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 offshore markets.

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-'