On 24 Nov 2022, Fitch Ratings has affirmed The Export-Import Bank of the Republic of China's (Taiwan EXIM) Long-Term Issuer Default Rating (IDR) at 'AA', ShortTerm IDR at 'F1+', National Long-Term Rating at 'AAA(twn)' and National Short-Term Rating at 'F1+(twn)'. The Outlook is Stable. Fitch has also affirmed the National Long-Term Rating on the bank's senior unsecured bonds at 'AAA(twn)'.
Ratings Driven by Government Support: Taiwan EXIM's IDRs are driven by its Government Support Rating (GSR), which is aligned with Taiwan's rating (AA/Stable/F1+). This reflects Fitch's expectation of an extremely high propensity of extraordinary support from the government, if needed, given the bank's unique and important policy mandate and full state ownership.
Policy Role: Taiwan EXIM is the only policy bank in Taiwan. It is a state-owned bank specialising in export and import credit and is supervised by the Ministry of Finance (MoF). It is regulated under The Export-Import Bank of the Republic of China Act to support the government's economic and trade policies, including the provision of financing, credit guarantees and credit insurance to local enterprises as well as financing to foreign enterprises.
The bank plays an important policy role, including providing debt-relief loans to exporters during the Covid-19 pandemic over 2020-2022. We expect it to play a similarly prominent role amid slowing global demand in light of Taiwan's export-dependent economy. Under the act, the government is obliged to make up for any net losses that are not covered by the bank's own reserves.
Government-Backed Funding: Taiwan EXIM relies on wholesale funding as it does not take deposits, underpinned by its strong linkages with the government. The central bank provided 39% of total funding as of end-August 2022, with another 23% from other
government agencies. Refinancing risk is low due to the bank's quasi-sovereign status. Taiwan EXIM has not experienced any financial distress that required liquidity support from the government. We expect the central bank and the state to increase their funding to support the bank's capital injection and balance-sheet expansion plans.
State-Funded Expansion: The government has provided ordinary support to the bank, including the equivalent of TWD20 billion in aggregate in capital between 2016 and 2021 from the MoF's annual budget. This is in addition to waivers on dividend distributions from the bank to the government to al low the bank to keep pace with its organic growth. This is particularly important as Taiwan EXIM is increasingly focused on large-scale green energy or public infrastructure projects. The government is contemplating another capital injection of around TWD10 billion in aggregate between 2023 and 2027.
Prudently Managed Financials: We expect the bank will continue to prudently manage its balance sheet and maintain modest profitability while executing government policies. It maintained a sound capital position (common equity Tier 1 ratio of 27.5% at end-1H22), as well as robust asset quality, with minimal non-performing loans.
Profitability has remained stable with an operating profit-to-risk-weighted asset ratio of 0.8% (annualised) in 1H22, slightly higher than previous years. We do not expect Taiwan EXIM's financials to be affected severely by interest rate hikes, as most of its investments are held to maturity and not subject to revaluations. In addition, the majority of its loans and funding are on a floating-rate basis.
High National Rating Scale: The National Long-Term Rating of 'AAA(twn)' on Taiwan EXIM is at the highest end of the Taiwan national rating scale, reflecting extremely low default risks relative to domestic issuers based in Taiwan. The Stable Outlook on the national rating is aligned with that on the bank's Long-Term I DR. The senior unsecured bonds are rated at the same level as the bank's National Long-Term Rating in line with Fitch's criteria.