Taipei, July 25, 2008 (CENS)--Taiwan Ratings Corp. (TRC) recently affirmed its `twA` long-term and `twA-1` short-term counterparty credit ratings on SinoPac Holdings. At the same time, TRC also affirmed its `twA+` long-term and `twA-1` short-term counterparty credit ratings on SinoPac Holdings` subsidiaries, Bank SinoPac and SinoPac Securities Corp. The outlooks on all the long-term ratings are stable.

The ratings reflect the SinoPac group`s good asset quality and adequate capitalization. Counterbalancing factors include the SinoPac group`s moderate profitability and scale disadvantage relative to international peers`. Bank SinoPac and SinoPac Securities are core members of the SinoPac group, and contribute about 70% and 30% of the group`s total equity and recurring profits, respectively.

The SinoPac group has reported disappointing results over the past 18 months, but the results appear to be exceptional and absorbable relative to the group`s capitalization. The group`s consolidated return on average assets was only 0.2% in 2007. The SinoPac group reported unaudited preliminary losses of NT$1.2 billion (or 0.2% of consolidated assets, annualized) in the first half of 2008. The loss was mainly due to the valuation loss on the group`s holdings of structured investment vehicles (SIV) owned by Bank SinoPac.

In 2007 and the first half of 2008, capital market volatility led the bank to write down up to US$290 million of the SIV investment, which had an original book value of US$350 million. However, the bank and the group`s consolidated adjusted total equity ratio was an adequate 5.2% and 7.2%, respectively, at the end of March 2008, down slightly from 5.7% and 7.4% at the end of 2006.

The stable outlook reflects TRC`s expectation that the SinoPac group will continue to pursue business adjustment and risk management enhancement. Such efforts should help to restore the group`s profitability to pre-2007 levels. However, intense industry competition will make it challenging for the SinoPac group to significantly improve its currently moderate profitability. The group`s capitalization should buffer against moderate business volatility, despite the slight deterioration in its capitalization as earnings have declined.

The TRC noted it expects the group to adopt a prudent financial policy, without pursuing aggressive merger and acquisition activity. The ratings may be raised if the group`s core earnings capability improves substantially, and its capitalization rises in strength. The ratings could be lowered if the group pursues an aggressive expansion strategy without adequate risk control or if unexpected investment losses and/or credit costs emerge due to a deterioration in the global financial markets, hurting the groups` profitability and weakening its capitalization.
(by Ben Shen)