Fitch Affirms Standard Chartered Bank (Thai)'s Rating at 'A-'
At the same time, the agency has affirmed SCBT's National Long-Term Rating at 'AAA(tha)' with Stable Outlook. A full list of rating actions is at the end of this rating action commentary.
The rating actions follow the affirmation of ratings on Standard Chartered Bank (SCB), the parent of SCBT, on 30 June 2015 (see "Fitch affirms Standard Chartered at 'AA-', Maintains Negative Outlook", at www.fitchratings.com).
KEY RATING DRIVERS
IDRS, NATIONAL RATINGS AND SUPPORT RATING
SCBT's IDRs, National Ratings and Support Rating are driven by parental support as Fitch believes that SCBT is a strategically important subsidiary of SCB. This is evident in SCB's 99.87% ownership of the Thai subsidiary, a strong level of integration between the two entities and a history of ordinary support from the parent to the subsidiary. SCBT is a long-term holding for SCB and has an important role in supporting the group's international banking business and expansion in the Greater Mekong region.
The Negative Outlook on SCBT's Long-Term Local-Currency IDR is consistent with the Negative Outlook on SCB's ratings.
SCBT's VR reflect the bank's strong financial buffers, in term of capitalisation and reserve coverage ratio, which should provide adequate cushion against asset-quality deterioration. SCBT's Tier-1 capital ratio was 22.0% (estimated by Fitch) at end-June 2015, the highest among local banks. While asset quality is a relative weakness, with NPL ratio at 7.2% at end-June 2015 and a further deterioration likely, its loan-loss reserve coverage ratio continues to be satisfactory at 123.9% at end-June 2015, which supports overall absorption buffers.
The VR also incorporates Fitch's view that profitability could remain weak over the next one to two years due to persistent provisioning risks and pressure on interest income from slow loan growth. SCBT's annualised ROA fell to 0.51% at end-June 2015 from its five-year average of 0.99%.
The National Rating on SCBT's short-term unsecured and unsubordinated debenture programme is at the same level as its National Short-Term Rating as they represent unsecured and unsubordinated obligations to the bank.
IDRS, NATIONAL RATINGS AND SUPPORT RATING
A change in SCB's IDRs would lead to similar rating action on SCBT's Long-Term Local-Currency IDR, but would be unlikely to affect the latter's Long-Term Foreign-Currency IDR, which is currently capped by Thailand's Country Ceiling of 'A-'.
SCBT's National Long-Term Rating of 'AAA(tha)' is the highest on Thailand's National Rating scale; hence, there is no upside. A downgrade of SCBT's National Ratings is unlikely to occur in the near term as SCBT's Long-Term Local-Currency IDR remains two notches above Thailand's Long-Term Local-Currency IDR of 'A-'.
A reduction in SCB's propensity to support SCBT, which might be seen, for example, in a material reduction in its shareholding, could result in negative rating action. However, Fitch believes this is unlikely to occur in the near term. Any change in Thailand's Country Ceiling would have a similar effect on SCBT's Long-Term Foreign-Currency IDR.
The VR is unlikely to be upgraded over the medium term unless SCBT materially strengthens its local franchise. Negative rating action on the VR could result if there is a substantial deterioration in asset quality that leads to material decreases in profitability and capitalization.
The National Rating on SCBT's short-term unsecured and unsubordinated debenture programme is currently at the highest on Thailand's National Rating scale. As such, there is no scope for upside. Conversely, the debt rating could be downgraded if SCBT's National Short-Term Rating were to be downgraded, although this is unlikely in the near term.
The full list of rating actions follows:
- Long-Term Foreign-Currency IDR affirmed at 'A-'; Outlook Stable
- Short-Term Foreign-Currency IDR affirmed at 'F2'
- Long-Term Local-Currency IDR affirmed at 'A+'; Outlook Negative
- Short-Term Local-Currency IDR affirmed at 'F1'
- Viability Rating affirmed at 'bbb'
- Support Rating affirmed at '1'
- National Long-Term Rating affirmed at 'AAA(tha)'; Outlook Stable
- National Short-Term Rating affirmed at 'F1+(tha)'
- National Rating on short-term unsecured and unsubordinated debenture programme affirmed at 'F1+(tha)'