Fitch Ratings has affirmed
The Outlook is Stable. At the same time, Fitch has affirmed TCBFC's Short-Term IDR at 'F1+'.
Key Rating Drivers
Ratings Reflect Extraordinary Support: TCBFC's ratings reflect Fitch's expectation of a very high probability of extraordinary support from the government (AA/Stable) for its parent,
The state (including affiliates) owns around 34% of TCFHC, based on disclosure of the company's 10 largest shareholders. TCFHC's principal subsidiary,
High National Rating Scale: TCBFC's National Long-Term Rating is at the high end of the national rating scale, reflecting very low default risk relative to its domestic peers due to the strong likelihood of support from TCFHC and, ultimately, the state. The Stable Outlook is in line with the Outlook on its IDR.
High Integration with Group: TCBFC, TCFHC and TCB are highly integrated in risk management and business strategy. TCB and TCBFC collaborate in syndication, with TCB providing long-term lending while TCBFC provides short-term commercial paper guarantees. The group also works together to support government policies - for example, they are focused increasingly on green energy financing. The group aims to further broaden the synergy between TCB and TCBFC. TCBFC has acquired some of TCB's corporate customers as repo counterparties, and diversified its funding sources during 2023.
Asset-Quality Risk Manageable: Fitch expects TCBFC's adequate collateral coverage to mitigate ultimate credit losses amid economic slowdown. Its impaired-guarantee ratio rose to 2.5% by end-2022 (end-2021: below 0.1%) due to default of one property exposure, which the company expects to fully recover in 2023-2024 through foreclosing property collaterals.
Its guarantee book is extended mainly to investment companies (37% of total guarantees at end-1H23) and the property sector (25%), which typically have sufficient collateralisation backed by listed stocks and property. We expect modest growth in its guarantee book over 2023, and the company will remain focused on investment companies and the property sector.
Profitability to Stabilise: We expect TCBFC's operating profit/risk-weighted assets (OP/RWA) ratio to fall towards 0.4% in 2023 (2022: 0.7%) due to elevated repo funding costs arising from rate hikes. The ratio, however, should recover moderately in 2024 as its repo funding cost stabilises and asset yields improve upon reinvestment and repricing of CP guarantees, alongside stronger growth in the guarantee book as the economy recovers.
Stable Capitalisation: We expect TCBFC to maintain its capital-adequacy ratio (CAR) at above 13% through managing its RWA growth. Its CAR was stable at 13.5% at end-1H23 (end-2022: 13.4%) and Tier 1 ratio at 13.4% (13.4%). RWA grew by 2.5% half-on-half by
Group Liquidity Support: TCBFC, like its peers, is heavily reliant on wholesale funding through repurchase agreements. The liquidity back-up facility from TCB, and the high credit quality and liquidity of its fixed-income holdings, coupled with ample system liquidity in
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
TCBFC's IDRs and Shareholder Support Rating (SSR) would be pressured as a result of a downgrade of
TCBFC's Short-Term IDR would be downgraded to 'F1' if its Long-Term IDR is downgraded to 'A-' or below.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
An upgrade of TCBFC's IDRs and SSR may occur if
The Short-Term IDR is already at the highest rating level of 'F1+', and therefore has no upside.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Public Ratings with Credit Linkage to other ratings
TCBFC's ratings are linked to
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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