A Study of the Effects for the Bank Credit Rating on the Issue Rate of Subordinated Debts

• Main Authors: Shih-Li Huang, 黃事立
• Other Authors: Jenho-Peter Ou
• Format: Others
• Language: zh-TW
• Published: 2005
• Online Access: http://ndltd.ncl.edu.tw/handle/723f5a

碩士 === 朝陽科技大學 === 保險金融管理系碩士班 === 93 === Abstract There’re fierce market competitions now within the banking sector. It is hard for banks to keep up with the needed level of market competitiveness; they are required to cut down the rate of non-performing loan aggressively while comply with the regulation of maintaining adequate capitals. In order to increase their capital position and the BIS ratio (bank for international settlements ratio), issuing Subordinated Debts has become one of the most commonly used fund raising options used by banks in recent times. This research focus on how banks’ credit ratings can influence the interest rate of their Subordinated Debts; research subjects were Subordinated Debts issuing domestic banks who also had long-term credit rating histories published by Taiwan Ratings, research period extends from the first domestic issuance of the Subordinated Debts in 1999 to 2004. The research had shown that between 1999 and 2003, the total issuing dollar amount and issue rate of the Subordinated Debts had been affected by banks’ practices of reducing the rate of non-performance loan, which in turn, prevented the full display of effects over bond interest from some banks’ credit ratings. It was not until the year of 2004 did the issuance of Subordinate Debts became stabilized, the average issure rate difference between twAA and twBBB banks were about two quarters of a point. Generally, the bank’s credit rating is inversely related to the interest rate of Subordinate Debts and that a bank with higher ratings can enjoy a lower bond issuing cost while lower ratings can mean higher costs. On the other hand, the bank’s credit rating is positively related to the issuing dollar amount of Subordinate Class Bond, higher dollar amount for banks with higher ratings and lower dollar amount for banks with lower ratings. The research results had demonstrated that bank credit rating can first influence the interest rate of Subordinate Debts, then further change the cost of financing and options available for fund raising. Hence, it is suggested that banks should always try to improve on their own credit ratings. In addition, it is also suggested that government officials should also encourage regular issuance of Subordinate Debts and conduct financial monitoring base on the generated market regulatory influences.