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February 26, 2008 |
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FAR EASTERN: Fitch Cuts Invidivual Rating to C/D Fitch Ratings has downgraded Taiwan-based Far Eastern International Bank's Long-term Issuer Default Rating to 'BBB-' from 'BBB', Individual rating to 'C/D' from 'C' and National Long-term rating to 'A(twn)' from 'A+(twn)'. The Outlook on the ratings is Stable. At the same time, the agency has affirmed FEIB's other ratings, which include its Short-term IDR at 'F3', National Short-term rating at 'F1(twn)', Support rating at '4' and Support Rating Floor at 'B+'. The rating downgrades are primarily driven by FEIB's weakened core capital as well as its core profitability. Consecutive losses in 2006 and the first nine months of 2007, tougher capital charges under the compulsory Basel II capital regime (standardised approach for credit risk and basic indicator approach for operational risk) and moderate loan expansion reduced the bank's Tier 1 capital ratio and Total CAR to 6.6% and 8.4% at end-September 2007, respectively, from 9.8% and 10.3% at end-2005. The bank's profitability metrics indicate a squeeze on margins, still high credit cost as well as relatively high operating cost ratios due to its limited franchise. Its shrinking portfolio in high yield unsecured consumer credits and rising funding costs have also negatively impacted FEIB's interest margins. Fitch notes that the asset quality of the unsecured portfolio has shown an improving trend but the cost to the bank of charge-offs has been high. FEIB managed to continue strong sales in treasury products and achieved notable growth in wealth management fees in 2007, albeit from a low base. Good performance in these areas helped compensate the decrease in credit card-related revenues. Further growth in these areas however, in Fitch's view, will be challenging due to a weaker investment environment globally following the recent credit crisis amidst keen competition from large financial groups. FEIB, established in 1992, is one of Taiwan's small to medium- sized private banks; it had a market share of 1.3% and 1.2% respectively in terms of total assets and deposits at end- November 2007. FEIB is a member of Far Eastern Group, a Taiwanese conglomerate. |
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