Fitch Ratings has affirmed
Fitch has also affirmed the Long-Term IDRs of TFHC's subsidiaries,
Key Rating Drivers
Driven by Intrinsic Profile: TIB's Long-Term IDR is driven by its Viability Rating, which is in line with its implied Viability Rating. The Stable Outlook reflects our expectation that the bank will maintain a competitive niche in consumer and digital banking among peers in
Stable Operating Environment: The operating environment score of 'a' with a stable outlook takes into consideration
Established Consumer-Banking Franchise: TIB's established consumer-banking franchise is supported by its strong market position in credit cards, wealth management and consumer lending. We expect its fintech investments to help expand its client base and sustain its consumer franchise. TIB has a leading position in digital banking in
Steady Risk Profile: TIB's risk profile score of 'bbb+' takes into consideration that its underwriting standards and borrower concentration are in line with the domestic peer average. Borrower concentration is higher than at other large
Stable Asset Quality: TIB's 'a-' asset quality score reflects the bank's broadly steady asset quality performance over the years, supported by stringent customer selection and a consistent collateralisation policy on secured loans. We expect the impaired loan ratio in 2024-2025 to rise modestly from 0.8% at end-9M23, as TIB has only a small exposure to relief loans. Most of its relief loans are for the government's guaranteed labour relief loan programme and deferred repayments for mortgage loans.
Sustained Core Profitability: We expect a steady increase in the bank's core earnings in 2024, supported by higher loan growth, steady margins and rising fee income, to be offset by higher loan provision charges. Bottom line profitability could also decline marginally, as we expect the bank's foreign-exchange swap income to retreat from a high base. Net profit increased by 30% yoy in 9M23, benefiting from steady loan growth, higher foreign-exchange swap gains, investment income and lower credit costs.
Improved Capital Buffer: We have revised TIB's capitalisation and leverage score to 'bbb+'/stable, from 'bbb'/stable, amid an improving common equity Tier 1 (CET1) ratio, which is supported by a capital injection from its holding company parent. We expect core capitalisation to further improve and remain at above 11% in 2024-2025, given TIB's commitment to keep the CET1 ratio on par with or above the domestic peer average. We forecast a stable sector average CET1 ratio over the period (9M23: 11.6% on a standalone basis).
Stable Funding and Liquidity: TIB's loan/customer-deposit ratio totaled 75% at end-9M23, down from 82% during 2020-2021 on strong deposit growth. The bank has expanded its US-dollar deposits since late 2022, given the rate differential between
TFHC
TFHC's regulatory DLR of 110% at end-9M23, which classifies preferred shares as equity and its 5.77% stake in
High Double Leverage Ratio: The Stable Outlook on TFHC's Long-Term IDR reflects our expectation that its common-equity DLR will stay below 150% over 2024-2025. This is despite further potential capital injections into its subsidiaries, including to enable TIB to lift its CET1 ratio to be on par with or above the domestic peer average by
High M&A Appetite: We believe TFHC remains opportunistic in potential M&A activities, given its small scale among
Steady Recurring Profitability: Higher loan growth, steady margins and recovering wealth management fees should support stable core profitability at TIB, despite a modest rise in credit costs. This should, in turn, support stable profitability at TFHC in 2024. TFHC's underlying net profit, net of one-off items in 2022, rose by 8% yoy in 9M23 on an improved performance at its subsidiaries, including higher investment income. TIB also saw steady growth in net interest and fee income as well as higher foreign-exchange swap gains, while TSS's brokerage commission fees rose on higher market turnover.
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
TIB
TIB's ratings could be downgraded if the bank significantly increases its growth appetite and compromises its underwriting standards, leading to severe deterioration in asset quality, profitability and capitalisation. For example, its Viability Rating could be downgraded if its impaired-loan ratio were to approach 3.0% (end-9M23: 0.8%), its operating profit/risk-weighted asset ratio were to drop towards 0.8% (1H23 annualised: 1.3%) and its CET1 ratio were to decline on a sustained basis to significantly below 11%.
TFHC
TFHC's IDRs could be downgraded if TIB's IDRs are downgraded due to the strong linkage between the two entities. TFHC could also be downgraded if its common-equity DLR rises above 150%, possibly due to significantly higher capital needs from its subsidiaries, including
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
TIB
TIB's ratings could be upgraded if the bank can significantly strengthen its overall risk profile, while demonstrating a sustained and notable improvement in asset quality and profitability. For example, if its impaired loan ratio was to fall towards 0.3% (average of 2020-1H23: 1.1%) and operating profit/risk-weighted asset ratio were to rise towards 2.0% (average of 2020-1H23: 1.2%).
TFHC
Any positive rating action on TIB will affect TFHC to a similar extent. An upgrade of TFHC's IDR could also materialise if it significantly increases its core capitalisation or reduces its common-equity DLR sustainably to below 120%.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
SHORT-TERM IDR
The Short-Term IDRs of TFHC and TSS are at the baseline option that maps to their Long-Term IDRs. TIB's Short-Term IDR is at 'F2', as its funding and liquidity score of 'a-' does not meet the minimum 'a' score to achieve a higher rating.
NATIONAL RATINGS
The National Long-Term Ratings of TIB, TFHC and TSS are at the higher-end of the rating scale, reflecting low default risk relative to domestic peers. The rating affirmation reflects our belief that the entities' credit profiles remain unchanged relative to the rated universe of issuers in
High Government Support: TIB's Government Support Rating reflects a high probability of government support, if needed, given its moderate systemic importance, with a deposit market share of about 4%.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
SHORT-TERM IDR
TIB's Short-Term IDR would be downgraded if its Viability Rating was downgraded and its funding and liquidity score was lowered to below 'bbb+'. The Short-Term IDR of TFHC and TSS would not be downgraded unless their Long-Term IDRs are downgraded to 'BB+' or below.
NATIONAL RATINGS
A downgrade of TIB's, TFHC's and TSS's National Ratings would arise from a weakening in their overall credit profiles on a relative basis to the national-rating universe.
SHORT-TERM IDR
The Short-Term IDR of TFHC and TSS could be upgraded if TIB's Short-Term IDR is upgraded. This could occur if TIB's funding and liquidity score is revised to 'a' or above, though we view this as unlikely given its moderate franchise.
NATIONAL RATINGS
Changes in Fitch's perception of TIB's, TFHC's and TSS's credit profiles relative to the national-rating universe could affect their National Ratings. Stronger credit profiles on a relative basis to the national-rating universe could lead to an upgrade of their National Ratings.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
TIB's Government Support Rating could be downgraded if we believes its perceived systemic importance had weakened.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Upside could be possible if TIB's systemic importance increases significantly, such as due to a merger or acquisition.
SUBSIDIARIES & AFFILIATES: KEY RATING DRIVERS
Support-Driven IDR: TSS' IDRs are solely driven by the company's Shareholder Support Rating (SSR), which is equalised with TFHC's IDR. This reflects our belief that there would be huge reputational risk to TFHC if TSS were to default, given the strong linkages between TSS and the group. TSS is fully owned and controlled by TFHC and its operational activities are supported by the group's client base and network. The rating also reflects TSS's small size relative to TFHC's ability to provide obliged support under
SUBSIDIARIES AND AFFILIATES: RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade
IDRS
Any negative rating action in TSS's SSR would lead to similar rating action at its Long-Term IDR.
SSR
Any negative rating action at TFHC would reflect a change in support ability and lead to similar rating action on TSS.
A decline in the group's propensity to support TSS would also lead to negative rating action. This may be indicated by signs of weakening integration, branding linkages and control, or Fitch's perception of a reduced strategic importance of TSS to its parent. However, Fitch believes a change in support propensity is not likely in the near term.
Factors that could, individually or collectively, lead to positive rating action/upgrade
IDRS
The Long-Term IDR of TSS is linked to its SSR.
SSR
There could be positive rating action on TSS's SSR if there was similar rating action on TFHC's Long-Term IDR.
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
TFHC's Long-Term IDR is linked to that of TIB. TSS's ratings are linked to those of TFHC.
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 www.fitchratings.com/topics/esg/products#esg-relevance-scores
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