Taiwan Business Bank upgraded to 'BBB+/A-2' on improved capitalisation

TAIPEI - S&P Global Ratings has raised its long-term issuer credit rating on Taiwan Business Bank (TBB) to 'BBB+' from 'BBB', and says the outlook is stable.

“The upgrade of TBB reflects our view that the bank's capitalisation will remain at an adequate level in the coming two years as represented by a risk adjusted capital (RAC) ratio of 7%-10%,” S&P says.

"We believe TBB will maintain its profitability with most of the earnings retained to support capital growth. We also forecast that TBB will have industry-average loan growth, and that the bank's asset quality will not deteriorate significantly despite its business focus on small and midsize loans."

TBB has improved its capitalization by issuing NT$8 billion of hybrid Tier 1 capital and prudently managing growth in risk assets, S&P says. TBB's RAC ratio improved to 9.2% at the end of September 2016, from 7.9% at the end of 2015.

“We classify this hybrid Tier 1 capital as having intermediate equity content and reflect the full amount into the bank's total adjusted capital, given that Tier 1 capital can absorb losses through deferred interest payments.

“Moreover, the issuance's call option cannot be exercised until the first call date, which is five years and three months from the issuance date.”

TBB's total net income averaged NT$5 billion annually for the years 2014-2016 and S&P expects a similar level of income in each of the next two years. www.standardandpoors.com (ATI).