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DBS Bank (Taiwan) Ltd -- Moody's affirms DBS Bank (Taiwan) Ltd's A2 deposit ratings; outlook stable

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Rating Action: Moody's affirms DBS Bank (Taiwan) Ltd's A2 deposit ratings; outlook stableGlobal Credit Research - 09 Dec 2021Hong Kong, December 09, 2021 -- Moody's Investors Service has affirmed DBS Bank (Taiwan) Ltd's long-term deposit ratings at A2.Moody's has upgraded the bank's Baseline Credit Assessment (BCA) to baa3 from ba1 and Adjusted BCA to a2 from a3, and affirmed the bank's Counterparty Risk Ratings (CRR) at A1/P-1 and Counterparty Risk (CR) Assessment at A1(cr)/P-1(cr).The outlook on DBS Bank (Taiwan) and its deposit ratings remains stable, reflecting Moody's expectation that the bank will maintain modest but stable asset quality, modest capitalization and strong liquidity profile over the next 12-18 months, while its parent's willingness and capacity to support the bank will remain broadly unchanged.A list of all affected ratings can be found at the end of the press release.RATINGS RATIONALEThe upgrade of DBS Bank (Taiwan)'s BCA to baa3 follows the bank maintaining its financial metrics stable at level consistent with baa3 BCA. Specifically, the bank's asset quality performed better than Moody's previous expectation, despite its relatively high borrower concentration, and it maintained stable capitalization and strong liquidity. The bank's BCA also takes into account the bank's weaker-than-peer profitability.Specifically, Moody's expects the favorable economic conditions in its domicile to support its asset quality, although the bank's impaired loan ratio is still higher than that of Taiwanese bank peers. The impaired loan ratio stood at 1.57% as of the end of June 2021.DBS Bank (Taiwan)'s capitalization is also adequate and stable, with Common Equity Tier 1 ratio at 10.1% as of the end of June 2021. The bank received capital injection from its parent, DBS Bank Ltd. (Aa1 stable, a1) in June 2019, and achieved a modest loan growth during 2019-2020. Having said that, DBS Bank (Taiwan)'s capitalization is still relatively weak compared with rated Taiwanese banks.The bank's profitability, as measured by net income/tangible assets, is weaker than its Taiwanese bank peers, mainly because of higher operating costs due to the bank's smaller scale. Moody's expects DBS Bank (Taiwan)'s profitability to remain broadly stable over the next 12-18 months, supported by the bank's focus on developing its wealth management business to drive non-interest income growth which should result in good fee and commission income growth.DBS Bank (Taiwan) has maintained strong liquidity, with little reliance on market funds, despite a small deposit franchise. The bank is largely funded by customer deposits. DBS Bank (Taiwan) holds ample liquid assets, with a liquidity coverage ratio of 119% for the second quarter of 2021, above the regulatory minimum requirement of 100%.DBS Bank (Taiwan)'s A2 deposit ratings incorporate a four-notch uplift based on Moody's assumption of a very high level of affiliate support from its parent, DBS Bank Ltd., in times of need, given 1) DBS Bank (Taiwan) is strategically important to its parent because of the importance of the Greater China market to DBS Group Holdings Ltd (Aa2 stable); and 2) the parent's strong capacity to provide support, as indicated by DBS Bank's a1 BCA.Moody's does not consider DBS Bank (Taiwan) to operate in an operational resolution regime. Therefore, Moody's applies a basic Loss Given Failure approach in rating DBS Bank (Taiwan)'s liabilities. The Preliminary Rating (PR) Assessment of the bank's deposit is the same as its a2 Adjusted BCA. The PR Assessment of the bank's CRRs and CR Assessment are at a1/a1(cr), one notch above the bank's Adjusted BCA.DBS Bank (Taiwan)'s ratings and CR assessment do not incorporate government support uplift, given the bank's small deposit market share in its domicile.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSDBS Bank (Taiwan)'s deposit ratings can be upgraded if DBS Bank Ltd.'s capacity to support DBS Bank (Taiwan) strengthens.DBS Bank (Taiwan)'s BCA could be upgraded if the bank strengthens its profitability and deposit franchise while maintaining adequate capitalization and good asset-quality metrics, with tangible common equity (TCE)/risk-weighted assets (RWA) above 12%, net income/tangible assets above 0.4% or an impaired loan ratio below 1.5% on a sustained basis.DBS Bank (Taiwan)'s deposit ratings can be downgraded if DBS Bank Ltd.'s capacity or willingness to support DBS Bank (Taiwan) weakens; if DBS Bank (Taiwan)'s strategic importance to DBS Bank diminishes; or if its standalone financial metrics deteriorate materially resulting in BCA downgrade.DBS Bank (Taiwan)'s BCA could be downgraded if the bank's asset quality deteriorates, with its impaired loan ratio rising above 3.0% or capitalization weakens with TCE/RWA falling below 9.0% on a sustained basis.PRINCIPAL METHODOLOGYThe principal methodology used in these ratings was Banks Methodology published in July 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1269625. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.Headquartered in Taipei, DBS Bank (Taiwan) Ltd reported total assets of TWD447.9 billion (or USD16.1 billion) as of 30 September 2021.LIST OF AFFECTED RATINGS AND ASSESSMENTSUpgrades:..Issuer: DBS Bank (Taiwan) Ltd.... Adjusted Baseline Credit Assessment, Upgraded to a2 from a3.... Baseline Credit Assessment, Upgraded to baa3 from ba1Affirmations:..Issuer: DBS Bank (Taiwan) Ltd.... Long-term Counterparty Risk Assessment, Affirmed A1(cr).... Short-term Counterparty Risk Assessment, Affirmed P-1(cr).... Long-term Foreign and Local Currency Counterparty Risk Ratings, Affirmed A1.... Short-term Foreign and Local Currency Counterparty Risk Ratings, Affirmed P-1.... Short-term Foreign and Local Currency Bank Deposit Ratings, Affirmed P-1.... Long-term Foreign and Local Currency Bank Deposit Ratings, Affirmed A2, Outlook Remains StableOutlook Action:..Issuer: DBS Bank (Taiwan) Ltd....Outlook, Remains StableREGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Moody's considers a rated entity or its agent(s) to be participating when it maintains an overall relationship with Moody's. 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Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.The first name below is the lead rating analyst for this Credit Rating and the last name below is the person primarily responsible for approving this Credit Rating. 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