Hua Nan FHC obtains stable ratings

Sherry Chien,The China Post

Hua Nan Financial Holding Corp. (Hua Nan FHC) yesterday was awarded ‘twA+’ and ‘twA-2’ for its long and short-term ratings from the Taiwan Ratings Corp. Hua Nan Commercial Bank was assigned a ‘twAA-’ for its counterparty credit rating.

According to the Taiwan Ratings Corp report: “The ratings on Hua Nan FHC reflect the collective and individual credit profiles of the company’s operating subsidiaries, the structural subordination of its claims relative to those of the creditors of its operating subsidiaries, the likely flow of funds from and to existing and potential operating subsidiaries in relation to Hua Nan FHC, and the developing regulatory environment for financial holding companies in Taiwan,” Hua Nan FHC, formed in December 2001, registered NT$1.274 trillion in consolidated assets and NT$85.7 billion in equities at the end of last year. Its two core subsidiaries are Hua Nan Commercial Bank and EnTrust Securities Co., Ltd. Hua Nan Commercial Bank represents over 98 percent of the group’s consolidated assets and 93 percent of its net worth at the end of 2001.

In the short to medium term Hua Nan FHC is expected to expand its activities in other financial services such as securities, insurance and venture capital, and also plans to issue NT$10 billion of subordinated debt.

Meanwhile, Hua Nan Commercial Bank’s ratings reflect both its strong position within the domestic market and its sound funding capacity, along with an extensive network and broad customer base. High scores were achieved despite the ratings taking into account the bank’s moderate asset quality which has been affected by recent structural changes to the Taiwan economy. The bank’s earnings have also been limited by high credit costs; however, profits are expected to improve following this years ‘cleaning up’ of problem assets.

The ratings report went on to say that: “Given Hua Nan’s long operating history and extensive service channels, the bank enjoys a strong market position in Taiwan, which, in turn, provides the bank with lower funding costs and favorable liquidity positions. At the end of 2001, Hua Nan accounted for 5.7 percent of the aggregate loan market and 6.0 percent of deposits, ranking it as the fifth largest bank in Taiwan. Hua Nan is particularly strong in the small and medium size enterprise and foreign exchange markets,”

Over the past few years, the bank’s asset quality has come to be considered as no more than mediocre, partly due to the overall influence of Taiwan’s economic slowdown. In spite of this the banks impaired assets ratio is actually slightly better than the market average.

In an attempt to restore performance to its asset book, the bank is refining its credit underwriting practice and updating control mechanisms. Nan Hua Commercial Bank has also decided to write-off NT$52.4 billion this year in an attempt to reduce problem assets and alleviate financial burdens in the future. From now on, due to the depleted capital brought about by this charge-off, the bank will issue subordinated financial debentures to meet regulatory capital adequacy requirements. To restore their previous levels of capital Hua Nan will have to rely on retaining future earnings.