OREANDA-NEWS. Fitch Ratings has affirmed Taiwan-based China Bills Finance Corporation's (CBF) ratings, including its Long-Term Issuer Default Rating (IDR) at 'BBB'. The Outlook is Stable. A full list of rating actions is provided at the end of this commentary.

KEY RATING DRIVERS
IDRS, NATIONAL RATINGS AND VIABILITY RATING
CBF's IDRs, National Ratings and Viability Rating reflect its established market position in the Taiwanese bills finance sector, generally sound underwriting quality in the guarantee business, and adequately managed core capitalisation. They also factor in the structural weaknesses, including limited business scope, susceptibility to interest-rate volatilities, reliance on wholesale funding and higher concentration risk in credits and liquidity compared to domestic banks.

The Stable Outlook underlines Fitch's expectation that CBF will remain disciplined in risk-taking and maintain satisfactory capitalisation and adequate liquidity relative to its growing commercial paper guarantee book and larger investments in bonds and bills. Meanwhile, risk associated with a sudden, unexpected interest rate increase is mitigated by the short duration of its fixed-income investments.

CBF's capitalisation remained sound despite its larger investments in bonds and bills following the central bank's rate cuts in 2H15. The increase in risk-weighted assets was moderate and smaller than the rise in internal capital generation as most of the new fixed-income investments were of investment grade and short duration. Its Fitch Core Capital ratio increased to 13.9% at end-2015 from 13.4% at end-2014.

Fitch believes risks associated with CBF's moderately rising guarantee exposures to the property sector should be manageable. The company focuses on creditworthy corporates and the loan-to-value ratio is reasonably conservative at around 50%. Meanwhile, CBF has a liquid balance sheet and the credit quality of underlying assets is good. This effectively mitigates the associated risks from its reliance on wholesale funding.

SUPPORT RATING AND SUPPORT RATING FLOOR
CBF's Support Rating and Support Rating Floor reflect the limited probability of government support, if needed.

RATING SENSITIVITIES
IDRS, NATIONAL RATINGS AND VIABILITY RATING
CBF's ratings are constrained by the aforementioned structural limitations. Negative rating action may result from any compromises in underwriting quality, weakened capitalisation arising from aggressive growth in the guarantee book or market risk, or unexpected market disruptions resulting in liquidity stress.

CBF's planned merger with its largest shareholder Industrial Bank of Taiwan (IBT) was postponed as IBT focuses on transforming itself into a commercial bank in 2016-2017. Fitch believes that the merger with IBT would likely be negative for CBF's ratings, considering IBT's weaker credit profile. Any announcements on the merger details could trigger an event-driven rating action.

SUPPORT RATING AND SUPPORT RATING FLOOR
The Support Rating and Support Rating Floor are sensitive to changes in assumptions around the government's propensity to provide timely support.

The rating actions are as follows:
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+'