On 20 Nov 2023, Fitch Ratings has affirmed The Export-Import Bank of the Republic of China's (Taiwan EXIM) Long-Term Issuer Default Rating (IDR) at 'AA', Short-Term 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 Long-Term IDR (AA/Stable/F1+). This reflects Fitch's expectation of anextremely high propensity of extraordinary support from the government, if needed, given the bank's uniqueand important policy mandate and full state ownership.
Policy Role: Taiwan EXIM, the only policy bank in Taiwan, aims to support the government's economic andtrade policies, including the provision of financing, credit guarantees and credit insurance. It was created underThe Export-Import Bank of the Republic of China Act, and is supervised by the Ministry of Finance (MoF). Underthe act, the government is obliged to make up for any net losses that are not covered by the bank's ownreserves.
The bank plays an important policy role, including providing debt-relief loans to exporters during the Covid-19pandemic in 2020-2022. We expect Taiwan EXIM's prominent role to continue, particularly in light of Taiwan'sexport-dependent economy and the uncertainty in the global trade outlook.
Government-Backed Funding: Taiwan EXIM relies on wholesale funding as it does not take deposits. The bankmaintains strong linkages to the government, with 40% of its total funding from the central bank as of end-August 2023 and another 22% from other government agencies, similar to the end-2022 level. Taiwan EXIM hasnot experienced any financial distress that would have required liquidity support from the government. Webelieve refinancing risk is low and expect the authorities to support the bank's funding as required, including toboost growth.
State-Funded Expansion: The government has approved the provision of ordinary support to the bankthrough the equivalent of TWD10 billion in aggregate capital between 2023 and 2027 from the MoF's annualbudget, including waivers in dividend distribution from the bank to the government to allow the bank to keeppace with its organic growth. This would be increasingly important for Taiwan EXIM's focus on publicinfrastructure projects.
Prudently Managed Financials: We expect the bank will continue to prudently manage its balance sheet andmaintain modest profitability while executing government policies. Profitability has remained largely stablewith an operating profit-to-risk-weighted asset ratio of 1.0% (annualised) in 1H23. The bank was not affectedseverely by interest rate hikes and rising funding costs, as most of its loans are on a floating-rate basis.
Taiwan EXIM maintains a sound capital position as well as robust asset quality, with minimal non-performingloans. Its common equity Tier 1 ratio rose to 26.9% by end-1H23, from 25.4% at end-2022, mainly due to acapital injection of about TWD2.0 billion from the MoF.
Highest Rating on National Scale: Taiwan EXIM's National Long-Term Rating of 'AAA(twn)' is at the highestend of the Taiwan national rating scale, reflecting extremely low default risks relative to other issuers based inTaiwan. The Stable Outlook on the national rating is aligned with that on the bank's Long-Term IDR. The seniorunsecured bonds are rated at the same level as the bank's National Long-Term Rating in line with Fitch'scriteria.