OREANDA-NEWS. Fitch Ratings has affirmed the ratings of Taiwan Cooperative Bills Finance Corporation (TCBFC) and Taiwan Cooperative Securities Co., Ltd. (TCS). The Outlooks are Stable. Both TCBFC and TCS are wholly owned subsidiaries Taiwan Cooperative Financial Holding Co., Ltd., of which the principal and fully owned subsidiary is Taiwan Cooperative Bank (TCB). A full list of rating actions is at the end of this rating action commentary.

KEY RATING DRIVERS - IDRs, National Ratings, and Support Rating

The ratings of TCBFC and TCS are driven by the very high probability of institutional support from their parent Taiwan Cooperative Financial Holding, and the holding company's largest shareholder, the state of Taiwan (A+/Stable). The support is underpinned by Taiwan Cooperative Financial Holding's strong commitment and legal obligation under the Financial Holding Act to assist its subsidiaries when they fall into financial difficulty. The agency is also of the view that the holding company has a more-than-adequate capacity to support TCBFC and TCS, as both subsidiaries only represent a small proportion of the group's assets. TCBFC and TCS are integral to the group, based on their high level of management and strategic integration, and brand sharing.

Taiwan Cooperative Financial Holding is very likely to receive support from the government in case of need, because of TCB's systemic importance in Taiwan's banking sector and a high level of government control. State and state affiliates own nearly 40% of Taiwan Cooperative Financial Holding, mostly through the Ministry of Finance. TCB is the second-largest bank in Taiwan by assets and it had a sizable deposit market share of about 7.4% as at end-2014.

TCBFC's pre-tax earnings rose by around 35% in 2014 due to an expanding commercial paper guarantee book and corporate bond investment. However, the expansion sent its Fitch core capital ratio lower to 16.4% at end-1H14 from 18.9% at end-2013. Fitch expects its Fitch core capital ratio to decline moderately in 2015 as the company expands the guarantee book, but will remain above most peers' 12%-13%.

TCS's earnings declined by 60% in 2014, mainly due to a fall in proprietary trading gains and one-off employee fringe benefits. Its capital adequacy ratio remained strong at 800% at end-1H14 (809% at end-2013). Fitch expects its capitalisation to moderately fall in 2015 due to growth but remain above the 400%-500% range for the sector.

TCBFC and TCS have Stable Outlooks, reflecting the Outlook on the Taiwan sovereign and Fitch's expectation that the state's ability or propensity to support them, indirectly through Taiwan Cooperative Financial Holding, will not weaken.

RATING SENSITIVITIES - IDR, National Ratings, and Support Rating

A change in the sovereign ratings of Taiwan may have a corresponding impact on TCBFC's and TCS's ratings. At the same time, the ratings of both are sensitive to changes to support for the group, including if sovereign support for TCB declines and/or if Fitch no longer views them as core entities of the group.

A Credit Update on TCBFC and TCS will be available shortly on www.fitchratings.com.

The rating actions are as follows:

TCBFC:
Long-Term IDR affirmed at 'A-'; Outlook Stable
Short-Term IDR affirmed at 'F1'
National Long-Term Rating affirmed at 'AA(twn)'; Outlook Stable
National Short-Term Rating affirmed at 'F1+(twn)'
Support Rating affirmed at '1'

TCS:
National Long-Term Rating affirmed at 'AA(twn)'; Outlook Stable
National Short-Term Rating affirmed at 'F1+(twn)'