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

KEY RATING DRIVERS
IDRS, NATIONAL RATINGS, SUPPORT RATING AND SUPPORT RATING FLOOR
The ratings of TCBFC and TCS are driven by the very high probability of institutional support from their parent TCFHC, and in turn TCFHC's largest shareholder, the state. The support is underpinned by TCFHC's strong linkage to government, and its legal obligation under the Financial Holding Act to assist its subsidiaries when they fall into financial difficulty.

State and state affiliates own nearly 35% of TCFHC, mostly through the Ministry of Finance. TCFHC closely follows government policy particularly through its banking subsidiary, TCB. TCB, as the third-largest bank in Taiwan, has systemic importance in Taiwan's banking sector, with a substantial deposit market share of about 7.3% at end-2015. The bank has moderately enhanced its financial strengthen in the past few years, including strengthened capitalisation and improved asset quality and earnings.

The agency believes that TCFHC has strong capacity to support TCBFC and TCS, as both subsidiaries only represent a small proportion of the group's assets. TCBFC and TCS are highly integrated with the group, based on their strong management and strategic integration, and brand sharing.

TCBFC's pre-tax earnings grew by around 49% in 2015 due to bad debt recovery and expanding commercial paper guarantee book and corporate bond investment. Fitch Core Capital Ratio fell to around 15% (versus 16.3% at end-2014) due to growth from a low base. Fitch expects its FCC ratio to decline moderately in 2016 as the company continue expands its 'guarantee' book, but will remain above the peer level of 12%-13%.

TCS's earnings remain volatile. The company posted an 11-fold growth in earnings in 2015, due mainly to large trading gains and, to a lesser extent, margin-loan interest income and securities underwriting fee income. The Capital Adequacy Ratio remained strong at 692%, versus 758% at end-2014. Fitch expects capitalisation to fall moderately in 2016 due to growth in investment, but to remain above the sector range of 300%-500%.

Fitch's Stable Outlook on TCBFC and TCS reflect our expectation that the state will maintain its controlling ownership and strong support in the medium term.

RATING SENSITIVITIES
IDRS, NATIONAL RATINGS, SUPPORT RATING AND SUPPORT RATING FLOOR
The ratings of TCBFC and TCS are sensitive to changes around group support, such as if sovereign support for TCHFC/TCB were to decline and/or if Fitch no longer views TCBFC and TCS as core entities in the group.

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

The ratings action is 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)'.