OREANDA-NEWS. Fitch Ratings has today affirmed the ratings of EnTie Commercial Bank (EnTie), Far Eastern International Bank (FEIB), King's Town Bank (KTB), Shanghai Commercial and Savings Bank (SCSB), Taichung Commercial Bank (Taichung), and Taipei Star Bank (TSB). The Rating Outlooks are Stable. A full list of rating actions is at the end of this rating action commentary.

KEY RATING DRIVERS

IDRS, NATIONAL RATINGS AND VIABILITY RATINGS

The ratings of the aforementioned are driven by their intrinsic credit profiles.

The affirmation of the banks' ratings and the Stable Outlooks reflect Fitch's expectation that their enhanced risk buffers will help them to withstand rising pressures on earnings and asset quality emanating from the economic slowdown in Taiwan and China and softening property market in Taiwan. Like most other banks, these six banks' interest margins narrowed or fee income growth slowed in 2015 or 1H16, following four rate cuts by Taiwan's central bank since September 2015 and reduced customers' appetite for loans and wealth management services. The six banks' impaired loans or charge-offs increased modestly in 1H16. Fitch believes their manageable exposures to the property sector and offshore market, and the low interest rates will help contain risks of rising credit losses.

SCSB and KTB are rated relatively higher at 'A-/AA(twn)' and 'BBB/A+(twn)', based on their above-average balance sheet strength and financial performance. SCSB has sound risk buffers and satisfactory earnings, backed by its long-established SME clients and Greater China franchise through its subsidiary in Hong Kong, Shanghai Commercial Bank, and major partner in China, Bank of Shanghai. KTB maintains superior capital generation and a stable risk profile through its consistent strategy to reduce concentration by diversifying into overseas bonds and to pursue cautious lending by developing niche markets.

Fitch considers the remaining four banks' capitalisation to be more vulnerable to cyclical downturns, largely due to their modest internal capital generation. They have higher credit concentration, in terms of single borrower lending (EnTie), mortgages (TSB and FEIB) or property-related sectors (Taichung).

Taichung and TSB are rated lower. Taichung has higher risk appetite in property exposures and weaker asset quality than peers with an impaired loan ratio of 2.6% at end-1H16 (Fitch-rated banks' average: 1.2%). TSB's risk profile is stable and its balance sheet strength adequate, despite being small in size. TSB's business scope constrains profitability, which is structurally weaker than that of its peers.

SUPPORT RATINGS AND SUPPORT RATING FLOORS

Support Ratings (SRs) and Support Rating Floors (SRFs) are driven by the respective banks' systemic importance. SCSB, FEIB, KTB and Taichung have SRs of 4 or 5, reflecting their modest systemic importance.

SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

EnTie, FEIB, and Taichung's Basel II-compliant subordinated debts are rated one notch below their National Long-Term Ratings to reflect their subordinated status and the absence of any going-concern loss-absorption mechanism.

FEIB and Taichung's Basel III-compliant subordinated debts are rated two notches below the banks' National Long-Term Ratings (which are anchored by their respective VRs) to reflect the bonds' limited recovery prospects. The bondholders would risk significant loss at the point of non-viability, when common equity capital would be very low, resulting in a very thin loss-absorption buffer. At the point of non-viability, which is reached upon government receivership, regulatory order for resolution or liquidation, the bonds would be ranked equally with common shares.

RATING SENSITIVITIES

IDRS, NATIONAL RATINGS AND VIABILITY RATINGS

Fitch believes that these six banks' ratings will be most sensitive to any significant increase in risk appetite in pursuit of yield, which would compromise credit standards, and material deterioration in asset quality arising from a sharp correction in housing price. Any excessive risk-taking in emerging markets in Asia could also lead to negative rating action on SCSB and FEIB. Meanwhile, failure to execute its current strategy or a change in senior management could also have downward rating pressure on KTB.

Rating upside prospects for all six banks are muted given the likely prolonged economic slowdown, which would put pressure on profitability and asset quality.

SUPPORT RATINGS AND SUPPORT RATING FLOORS

The SRs and SRFs are potentially sensitive to any change in assumptions around the propensity of the Taiwan government to provide timely support to these banks. An upgrade of Taiwan's sovereign rating (A+/Positive) is less likely to affect the SRs or SRFs due to their modest systemic importance.

SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

Subordinated debt ratings of EnTie, FEIB, and Taichung are broadly sensitive to the same considerations that might affect their VR.

The rating actions are as follows:

EnTie:

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

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

Subordinated debt affirmed at 'A-(twn)'

FEIB:

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

Short-Term IDR affirmed at 'F3'

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 '4'

Support Rating Floor affirmed at 'B+'

Subordinated debt affirmed at 'A-(twn)'

Subordinated debt (Basel III-compliant) affirmed at 'BBB+(twn)'

Convertible bond affirmed at Long-Term Rating of 'BBB-' and National Long-Term Rating of 'A(twn)'.

KTB:

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

Short-Term IDR affirmed at 'F3'

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 '5'

Support Rating Floor affirmed at 'No Floor'

SCSB:

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

Short-Term IDR affirmed at 'F1'

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

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

Viability Rating affirmed at 'a-'

Support Rating affirmed at '4'

Support Rating Floor affirmed at 'B+'

Taichung:

Long-Term IDR affirmed at 'BB+'; Outlook Stable

Short-Term IDR affirmed at 'B'

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

National Short-Term Rating affirmed at 'F2(twn)'

Viability Rating affirmed at 'bb+'

Support Rating affirmed at '5'

Support Rating Floor affirmed at 'No Floor'

Subordinated debt affirmed at 'BBB+(twn)'

Subordinated debt (Basel III-compliant) affirmed at 'BBB(twn)'

TSB:

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

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