Moody's said April 6 that it affirmed CTBC Financial Holding Co. Ltd.'s issuer rating at Baa1 andCTBC Bank Co. Ltd.'s depositratings at A2/P-1, with a stable outlook.
The rating agency also affirmed CTBC Bank's baseline credit assessmentand adjusted baseline credit assessment at "baa2" and counterparty riskassessment at A1(cr)/P-1(cr).
The ratings actions follow the announcement of CTBC Bank's planned acquisition of a 35.6%stake in Thailand's LH Financial GroupPCL for 16.60 billion baht.
The affirmations reflect Moody's expectation that CTBC Bank willretain adequate capitalization despite the drag from its purchase of the newly issuedLH Financial shares.
The transaction is not likely to weigh materially on the Taiwanesebank's own asset quality and liquidity profile, the rating agency said. It addedthat the investment will likely be modestly negative in terms of profitability forCTBC Bank as LH Financial's return on assets is lower than that of the bank andgiven the 1.67x book multiple for the transaction.
CTBC Bank's ratings could be upgraded if its tangible commonequity-to-risk weighted assets ratio improves to above 11% and its impaired loanratio falls below 1%. The bank's ratings could be downgraded if its net income fallsbelow 0.5% of tangible assets, its tangible common equity declines to below 8% ofrisk-weighted assets, its impaired loan ratio exceeds 3% or its capitalization weakensdue to debt-financed acquisitions.
CTBC Financial's issuer ratings could be upgraded if the financialprofiles of its main banking and insurance subsidiaries improve and if the companymaintains a modest double leverage level. Conversely, a downgrade in the company'srating could result from a downgrade in CTBC Bank's rating, its double leverageratio increasing to over 115% due to debt-funded acquisitions or the credit profileof its insurance company deteriorating materially.
As of April 6, US$1 wasequivalent to 35.30 Thai baht.