OREANDA-NEWS. Fitch Ratings has assigned Bank of Kaohsiung (BOK) a National Long-Term Rating of 'A+(twn)' and National Short-Term Rating of 'F1+(twn)'. The Outlook is Stable.

KEY RATING DRIVERS
NATIONAL RATINGS
The ratings reflect the high probability of support by the bank's 45% controlling owner Kaohsiung City Government (KCG), or indirectly by the sovereign through the city government if needed. This is based on Kaohsiung as the second largest municipality in Taiwan and BOK's strong linkage to KCG. The linkage includes KCG's long-term and significant ownership, effective control of the bank's board and management and the bank's policy mandates by KCG. BOK is the banker to KCG and extends policy loans to low-income mortgage borrowers and students, in line with the city government's policy objectives.

The Stable Outlook is based on Fitch's belief that the bank's linkage to KCG will remain steadfast in the near to medium term, based on the bank's affinity to KCG, as well as its important and long-lasting policy function.

Fitch expects KCG or indirectly the central government to extend extraordinary support to BOK if needed, including supporting the bank's rights issue in coming years in order to comply with stricter Basel III capital requirements. The bank is modestly capitalised with a Fitch Core Capital ratio of 6.68% at end-2014, compared with a sector average of around 10%. It has modest internal capital generation due to below-average earnings, which are primarily due to moderately high exposure in low-yield policy loans.

RATING SENSITIVITIES
NATIONAL RATINGS
BOK's ratings are sensitive to changes around the perceived propensity of the Taiwan government to support BOK. That may arise from a diminished policy role of BOK to KCG. At the same time, a change in Taiwan's sovereign rating could result in a corresponding impact on BOK's ratings.