October 13, 2017 / 9:39 AM / 9 months ago

Fitch Affirms Standard Chartered Bank (China) at 'A'; Outlook Stable

(The following statement was released by the rating agency) HONG KONG/SHANGHAI, October 13 (Fitch) Fitch Ratings has affirmed the Long-Term Issuer Default Rating (IDR) on the Shanghai-based Standard Chartered Bank (China) Limited (SCBC) at 'A' with a Stable Outlook. The bank's Short-Term IDR is affirmed at 'F1' and the Support Rating at '1'. A full list of rating actions is at the end of this commentary. The rating action follows the affirmation of ratings on SCBC's parent, UK-based Standard Chartered Bank (SCB, A+/Stable/a), on 11 October 2017 (see <a href="https://www.fitchratings.com/site/pr/1030516">Fitch Affirms Standard Chartered's 'A+' Rating, Revises Holdco's Outlook to Negative). KEY RATING DRIVERS IDRS AND SUPPORT RATING The ratings affirmation reflect Fitch's view of the strong ability and propensity of SCB to extend timely and extraordinary support to its wholly owned subsidiary in China, if required. The IDR on SCBC is aligned with the Viability Rating (VR) of SCB based on their shared businesses, strategic priorities, risk appetite, management and brand identity. The Long-Term IDRs and senior debt ratings of Standard Chartered PLC (SC, A+/Negative/a) and its main operating subsidiary SCB are one notch above their VRs because we believe the risk of default on senior obligations, as measured by the Long-Term IDR, is lower than the risk of the entity failing, as measured by the VR. This is because of the presence of a significant junior debt buffer. We may consider extending the uplift to SCBC's Long-Term IDR if a higher quantum provides SC and SCB with more down-streaming flexibility, but for now we do not believe SCBC's creditors can rely on the buffer, as junior debt is neither pre-positioned nor specifically allocated. Fitch expects SCBC to continue to play an integral role in supporting SC's strategy due to its long history, relationships and branch network in mainland China. The bank, which has grown organically from a branch of the UK-based parent, works closely with its parent to attract inbound businesses from multinational corporates operating in China and to support Chinese corporates seeking to go global. SCBC's focus on expanding sectors - including technology and biotech, small and medium-sized enterprises and affluent retail clients - and investing in digital capability are essential to SC's priorities. Fitch believes a default by SCBC would constitute a significant reputational risk for SC that could undermine its franchise in China and damage its global reputation as a network bank, notwithstanding the subsidiary's small size. SCBC accounted for 4% of SC's assets, 5% of total revenue, 4% of gross customer loans and 5% of total customer deposits at end-2016. We believe SC's strong capitalisation and solid liquidity profile aids its ability to support SCBC. SCBC's asset and liability management integration with SC stems from the placement of excess liquidity with the parent bank and other SC entities (end-2016: net placement of about CNY8 billion). The China subsidiary is mainly deposit-funded with loans only accounting for 35% of assets at end-2016. Fitch does not assign a VR to SCBC as its strategy and operations are closely aligned with those of its parent. In addition, SCBC's association with SC significantly enhances its access to funding, as the majority of its deposits stem from SC's network customers. The Stable Outlook on the bank's ratings is in line with that on SCB. RATING SENSITIVITIES IDRS AND SUPPORT RATING SCBC's IDRs and SR are sensitive to Fitch's assumptions around the ability or propensity of SC to extend extraordinary support in a timely manner. A decline in SCBC's relevance for SC's strategy would be negative for the rating. Any change in SCB's VR is likely to lead to similar rating action on SCBC, subject to China's Country Ceiling, which is currently at 'A+'. The rating actions are as follows: Long-Term Foreign-Currency IDR affirmed at 'A'; Outlook Stable Short-Term Foreign-Currency IDR affirmed at 'F1' Support Rating affirmed at '1' Contact: Primary Analyst Veronica Lau Director +852 2263 9924 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central Hong Kong Secondary Analyst Jack Yuan Associate Director +86 21 5097 3038 Committee Chairperson Jonathan Cornish Managing Director +852 2263 9901 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. 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