LENDING & CREDIT | Tony Chua, Taiwan

Fitch downgrades select Taiwan financial institutions' hybrid ratings

Companies failed to maintain outstanding debt issues performance as measured by Fitch’s revised hybrid notching criteria.

Fitch Ratings on Wednesday has downgraded the National Long-term ratings of the outstanding issuance of hybrid securities from Chinatrust Commercial Bank (Chinatrust), Taishin Financial Holdings Company (Taishin Holding), E.Sun Financial Holding Co Ltd (E.Sun Holding) and Jih Sun Financial Holding Co., Ltd (Jih Sun Holding). The rating actions follow the agency's review of Taiwanese financial institutions' outstanding debt issues, and are in line with its revised hybrid notching criteria, according to a Fitch Ratings report.

The downgrades mainly reflect the debt issues' going concern loss absorption feature through coupon and/or principal deferrals once the capital adequacy ratio falls below the regulatory minimum requirement of 8% (for Chinatrust) and 100% (for Taishin Holding, E.Sun Holding and Jih Sun Holding). Nonetheless, these four financial institutions' capital adequacy ratios were well above the requirements at end-2009.

These rating actions do not involve any changes to the financial institutions' other outstanding ratings. Following the downgrades, the debt ratings are two notches below the issuers' National Long-term ratings, which in turn are based on their respective standalone credit profiles. Fitch does not assign any equity credit to these subordinated bonds as the effective maturities (based on contractual callable date) are less than five years.

The downgrades are as follows:

  • Chinatrust's perpetual subordinated debt rating downgraded to 'AA-(twn)' from 'AA(twn)'.
  • Taishin Holding's subordinated debt rating downgraded to 'BBB+(twn)' from 'A-(twn)'.
  • E.Sun Holding's subordinated debt rating downgraded to 'BBB+(twn)' from 'A-(twn)'.
  • Jih Sun Holding's subordinated debt rating downgraded to 'BBB-(twn)' from 'BBB(twn)'.

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