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  Privatization Could Reduce Credit Recognition for Taiwan Government Banks

 
2002/09/18



Analysts: Susan Chu,886-2-23688277#213
Mei Chiang,886-2-23688277#209

RatingsDirect publication date:18-Sep-2002

Taiwan Ratings Corp (TRC) said today that it is likely to reduce the degree to which it recognizes government support and incorporates it into its ratings on Taiwan's policy banks in the event that the island's government proceeds with plans to sell down its equity stakes in such banks. The Taiwan government has indicated that it wishes to complete its planned sell down of banks by 2006.

It can take years to achieve efficiencies through transfers to private ownership from public ownership; therefore, the kind of privatization the government envisages would usually translate into a near-term lowering of the ratings on the banks affected. The importance of a bank's role as an instrument of government policy is a contributing factor in TRC's recognition of implied government support. The ratings on individual banks could, however, remain at their current levels, in the event that their respective standalone financial profiles strengthen substantially prior to the date of any intended sell down. This is because the standalone financial profiles of individual banks represent a factor more fundamental to the ratings on the banks than the degree of implicit government support.

Conversely, if the standalone profiles of government-linked banks deteriorate significantly before such sales take place, TRC's may lower its ratings on the respective banks prior to privatization. With or without privatization, the standalone profiles of Taiwan's banks will remain the main driver of future credit rating actions.

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