OREANDA-NEWS. Fitch Ratings has today published Taiwan-based KGI Bank's Long-Term Issuer Default Rating (IDR) at 'BBB' with a Stable Outlook and its Viability Rating (VR) at 'bb+'. At the same time, the agency has affirmed the bank's National Long-Term and Short-Term Ratings at 'A+(twn)' and 'F1(twn)' respectively. A full list of rating actions is at the end of this rating action commentary.

KEY RATING DRIVERS - IDRs and National Ratings

KGI Bank's IDRs and National Ratings reflects Fitch's view that the bank will benefit from support from its parent China Development Financial Holding Corporation (CDFHC), which has a stronger credit profile than that of KGI Bank on a standalone basis. Fitch believes CDFHC is highly likely to support KGI Bank, if needed, because KGI Bank is a core part of the parent's strategy to be a diversified universal banking group that offers commercial banking, investment banking and asset management services.

Fitch's assessment considers the transfer of businesses from China Industrial Development Bank's (CDIB) corporate banking and global financial market divisions to KGI Bank, which the group had previously announced. CDIB is another fully owned subsidiary of CDFHC.

CDFHC's credit profile is not only influenced by KGI Bank's standalone risk profile, but also reflects the credit profiles of its investment banking operation - namely KGI Securities, another fully-owned subsidiary of CDFHC - and CDIB's direct investment business. CDFHC has a strong market position in the brokerage and principal investment business in Taiwan, a track record of earnings generation capability, and a direct investment portfolio fully funded by its own equity.

RATING SENSITIVITIES - IDRs and National Ratings

KGI Bank's IDRs and National Ratings are most sensitive to the credit profile of CDFHC (including execution of its strategies) and the bank's own intrinsic strength, which has a growing influence on CDFHC's risk profile. The ratings currently are support driven, as Fitch expects KGI Bank to remain a core subsidiary of CDFHC and its standalone profile to remain weaker than CDFHC's in the coming two years.

Negative rating action could arise should KGI Bank's importance to CDFHC diminish or the propensity for CDFHC to support it reduce. Negative rating action could also be taken if CDFHC's credit profile deteriorated (including due to deterioration of KGI Bank's intrinsic credit profile), potentially from continued weakening of capitalisation and/or increase in use of leverage, and/or from rapid growth at KGI Bank.

KEY RATING DRIVERS - Viability Rating (VR)

KGI Bank has a modest franchise with large concentrations in credit exposures and deposit funding relative to domestic peers. It stands to benefit from increased integration and cooperation with other group entities (following the business transfers) through greater business diversity. The VR takes into account the bank's growth being adequately supported by a combination of internally generated capital and capital injections from the group.

RATING SENSITIVITIES - VR
KGI Bank's VR is most sensitive to the bank's risk-taking, although the VR already takes into account Fitch's estimate for double-digit annual growth in the next couple of years - if this is to occur, it would increase the potential for future asset quality deterioration. As such, an upgrade is not expected in the medium term. In any case, an upgrade in the VR will be dependent upon KGI Bank strengthening its overall financial profile with prudent expansion of its franchise. Any excessive risk taking without mitigation through improved risk buffers could lead to negative action on the VR.

The full list of rating actions follows:

Long-Term IDR published at 'BBB'; Outlook Stable
Short-Term IDR assigned at 'F3'
National Long-Term Rating affirmed at 'A+(twn)'; Outlook Stable
National Short-Term Rating affirmed at 'F1 (twn)'
Viability Rating published at 'bb+'