OREANDA-NEWS. Fitch Ratings has affirmed the Issuer Default Ratings (IDRs) on Taiwan-based Bank SinoPac (BSP) and its parent SinoPac Financial Holdings Company Limited (SPH) at 'BBB', both with Stable Outlook. A full list of rating actions is provided at the end of this commentary.

KEY RATING DRIVERS

IDRS, NATIONAL RATINGS AND VIABILITY RATINGS (VR)

The affirmation of BSP's IDR and VR and the Stable Outlook reflects its stable credit profile, which is underpinned by well-managed asset quality and healthy capitalisation. The management has delivered consistent performance in earnings and asset quality, while the ratings also consider the bank's greater variation in operational risk control compared with peers in recent years.

SPH's IDR and VR are equalised with those of its principal banking subsidiary, BSP. Fitch views SPH and BSP as a consolidated entity while SPH maintains moderate leverage at the holding company level.

BSP has been more active than its local peers in pursuing opportunities in China, including forming a strategic alliance with ICBC (China) and incorporating a subsidiary locally in Nanjing. Meaningful growth in China could alter the bank's risk profile, although this is less likely in the medium term given the economic slowdown in China. BSP's China exposure is higher than that of peers, although exposure to China has reduced significantly due to weakened demand, based on Fitch's assessment.

Credit standards appear consistent and conservative. Most loans are for housing or to large corporate with lower risk. The bank has incurred minimal new impairments since 2014. Impaired loans are significantly lower at 0.7% of total loans than the sector average of 1.1%, and are well-covered by its loan-loss reserve.

The bank is well-capitalised with Fitch Core Capital ratio at 12% at end-1H16, thanks to full earnings retention in 2012-2015 and modest asset growth. Fitch expects the bank to maintain a healthy capital position in the medium term based on assumptions of moderate balance-sheet growth, and stable asset quality and credit cost.

SUPPORT RATING AND SUPPORT RATING FLOOR

BSP's Support Rating of '3' and Support Rating Floor of 'BB+' reflect its moderate systemic importance and a moderate probability of state support, if needed.

RATING SENSITIVITIES

IDRS, NATIONAL RATINGS AND VIABILITY RATINGS

A rating upgrade may occur if BSP's earnings prove to be sustainably robust without materially raising its risk appetite. A weakened risk profile and inadequate capitalisation arising from aggressive growth in China may result in a negative rating action. Any rating action on BSP could trigger a similar move on SPH's ratings.

SUPPORT RATING AND SUPPORT RATING FLOOR

BSP's Support Rating and Support Rating Floor are sensitive to any change in assumptions around the propensity or ability of the Taiwan government to provide timely support to the bank. An upgrade of Taiwan's sovereign rating (A+/Positive) will not affect the Support Rating and Support Rating Floor due to BSP's modest systemic importance

A Credit Update on SPH and BSP will be available shortly at www. fitchratings. com.

The rating actions are as follows:

SinoPac Financial Holdings:

Long-Term IDR affirmed at 'BBB'; Outlook Stable

Short-Term IDR affirmed at 'F2'

National Long-Term Rating affirmed at 'A+(twn)'; Outlook Stable

National Short-Term Rating affirmed at 'F1+(twn)'

Viability Rating: affirmed at 'bbb'

Bank SinoPac:

Long-Term IDR affirmed at 'BBB'; Outlook Stable

Short-Term IDR affirmed at 'F2'

National Long-Term Rating affirmed at 'A+(twn)'; Outlook Stable

National Short-Term Rating affirmed at 'F1+(twn)'

Viability Rating affirmed at 'bbb'

Support Rating affirmed at '3'

Support Rating Floor affirmed at 'BB+'