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Taiwan Ratings Announces Results of Strategic Portfolio Review
Taiwan Ratings Corp. today announced that it had adjusted its issuer and related issue credit ratings on 63 corporate and financial entities (see attached list) following a comprehensive strategic review of its ratings portfolio. The changes take into account the default and ratings transition experience of Taiwan Ratings' issuer ratings since the rating agency's establishment in 1997, and also incorporate the findings of its regular review of economic and industry factors affecting issuer ratings. "After seven years of assigning ratings and collating default and ratings transition data, the timing was right for a strategic review of our ratings portfolio", said Mr. Eddy Yang, Taiwan Ratings' new president. He added that the goal of the review was to ensure that the information content embedded in the relativity of issuer ratings continues to meet market needs. The seven-year's worth of default and ratings transition data exceeds the five-year requirement mandated by the new Basel II Capital Accord, and is the longest data coverage on domestic issuer ratings available among local credit rating agencies. "Obviously, relativity is important for credit ratings. Now that we have assigned well over a hundred issuer ratings, we have a sufficiently robust database to assess and adjust these ratings, as we already readily demonstrated, to highlight the contrast in credit risks between issuers," said Tony Tsai, Director of Taiwan Ratings. He explained that while the portfolio review has resulted in a shift in the ratings distribution toward higher rating categories, with 96% of Taiwan Rating's issuer ratings now rated twBBB- or higher compared with 91% previously, the twA category remains the median rating. The strategic review also examined the various trends affecting domestic industries from a credit perspective, with particular focus paid to the financial services industry in light of important developments that have taken place in recent years. "Our review has found that the risk profile of certain financial institutions has improved beyond our original expectations, mainly as a result of accelerating integration within financial holding company (FHC) groups, improvements in risk management, especially by securities firms, and continuing indirect system support for licensed banks," said Mei Chiang, Director of Taiwan Ratings. Integration among FHC group members, especially in terms of organizational structure and human capital, has proceeded relatively smoothly since 2001. This lends credence to Taiwan Ratings' view that the smaller, financially weaker members of FHC groups are better able to rely on support from stronger group members. Meanwhile, the rationalization and consolidation domestic securities firms has resulted in stronger industry players and largely mitigated the risks posed by deregulation. As a result, Taiwan Ratings has adjusted its issuer ratings on both FHC group members to reflect closer group ties, and securities firms to reflect the improved profile of their industry. Recent developments indicate that the government and regulatory authorities now set a more clear direction toward the banking sector. In the late 1990s, it was unclear as to what the authorities intended to do with troubled banks and with their residual stakes in government-linked banks. But the recent creation of the Financial Supervisory Commission highlights the government's efforts to develop a more consistent policy approach. Increased policy clarity and recent evidence of support for troubled banks suggests that the level of system or government support--implicit support for smaller, financially weaker banks, and indirect support in government-linked banks--has stepped up a notch. Accordingly, Taiwan Ratings has adjusted its issuer ratings on small and midsize banks and government-linked banks. As for the industrial corporate sector, Taiwan Ratings has examined the industry characteristics, competitive position, and financial risk of each individual issuer, as well as ratings relativity via cross-industry comparisons. In the past year, Taiwan Ratings has upgraded issuers in the steel, semiconductor foundry, auto, shipping, and petrochemical industries. The ratings adjusted as part of the portfolio review include issuers in the telecommunications, cement, printed circuit board, and real estate industries, as they have shown stronger financial profiles as a result of improved industry conditions and enhanced operating performance. Taiwan Ratings is Taiwan's leading local rating agency. Credit ratings assigned by Taiwan Ratings are opinions based on the relative creditworthiness of obligors and obligations in Taiwan, and exclude certain direct and indirect sovereign risks. Taiwan Ratings expects its rating methodology to continue to evolve alongside the continuing development of Taiwan's economy, regulatory environment, and financial markets.
List of Credit Rating Adjustments After Strategic Portfolio Review
Bank (30)
Insurance Company (2)
Bills Finance Company (3)
Securities Company (20)
Financial Holding Company (FHC) (3)
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