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Hua Nan Bank's Series 98-3 subordinated debentures rated 'twA'; TRC.

Taipei, Dec. 25, 2009 (CENS) -- Taiwan Ratings Corp. (TRC) recently assigned its 'twA' issue rating to a Series 98-3 NT$3 billion perpetual non-cumulative unsecured subordinated debenture issued by Hua Nan Commercial Bank.

The hybrid security issue, which combines debt and equity features, is rated two notches lower than the 'twAA-' long-term counterparty credit rating on Hua Nan because of its subordinated status, the inclusion of a mandatory interest payment deferral clause that is subject to a regulatory capital test, and the financial status of the bank.

The issue ranks senior to Hua Nan's ordinary shares but junior to the bank's outstanding debt obligations, with regard to payments of interest and relevant amounts upon liquidation. According to the issue's terms and conditions, interest and principal payments will be deferred when Hua Nan's regulatory capital adequacy ratio (CAR) falls below the current minimum regulatory requirement of 8%. In addition, Hua Nan will not pay interest if the bank's financial profile becomes too fragile as defined in the issue's terms and conditions. Hua Nan reported a regulatory CAR of 11.2% at the end of June 2009. The bank's adequate capitalization and its resolve to pay interest in a timely manner provide a reasonable buffer against possible deferral of interest and principal payment.

TRC noted the main purpose of the hybrid security issue is to increase the bank's regulatory capital ratios and support business growth. The hybrid security qualifies as Tier-I capital under Taiwan's banking regulations. Nevertheless, TRC regards it as having lower quality capital compared with adjusted common equity, which has no fixed obligations and has a better ability to absorb losses.


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Title Annotation:Taiwan Ratings Corp.
Publication:The Taiwan Economic News
Article Type:Brief article
Date:Dec 25, 2009
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