Reuters logo
Fitch Affirms Standard Chartered Bank Korea at 'A'; Outlook Stable
October 13, 2017 / 3:38 AM / 11 days ago

Fitch Affirms Standard Chartered Bank Korea at 'A'; Outlook Stable

(The following statement was released by the rating agency) SEOUL, October 12 (Fitch) Fitch Ratings has today affirmed the Long-Term Issuer Default Rating (IDR) on Standard Chartered Bank Korea Limited (SCBK) at 'A'. The Outlook is Stable. At the same time, Fitch has affirmed the Viability Rating at 'bbb'. A full list of rating actions is at the end of this rating action commentary. The rating action follows the affirmation of ratings on Standard Chartered Bank (SCB: A+/Stable/a), the sole owner of SCBK, 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 bank's IDRs and Support Rating of '1' reflect Fitch's view that there is an extremely high likelihood that its parent, SCB, would provide support to the bank, if required. SCBK's Long-Term IDR is equalised with the Viability Rating of SCB and its ultimate parent, Standard Chartered PLC (SC, A+/Negative/a). The anchor rating of SCBK's Long-Term IDR is the parents' Viability Rating because Fitch believes that SCBK would not benefit from the parents' significant junior debt buffer that uplifts their Long-Term IDR one notch above their Viability Rating. Such a buffer reduces the risk of default on senior obligations issued by the parents, as measured by their Long-Term IDR, compared to the risk of the entities failing, as measured by their Viability Rating. SCBK forms a key part of SCB's extensive international transaction banking operation in export-oriented South Korea where there are substantial trade volumes from the corporate segment. SCBK is fully owned by SCB and shares the parent's brand name. SCB has shown continued commitment to its Korean subsidiary even though Korea's business environment has been very challenging for a foreign-owned player like SCBK. SCBK's Stable Outlook reflects SCB's Stable Outlook. VIABILITY RATING SCBK's 'bbb' Viability Rating is mainly driven by its weak earnings from traditional commercial banking operations and high reliance on trading operations. It also takes into account improving asset quality, capitalisation that is above its local peers and strong ordinary support from SCB, especially in risk management and foreign-currency funding. Fitch assesses that SCBK's earnings from traditional commercial banking operations do not sufficiently compensate for its high general and administrative (G&A) expenses and credit costs. Its net profits, therefore, have been highly reliant on its securities, FX and derivatives operation, which can be quite volatile depending on capital market conditions. SCBK's strategy to strengthen its local retail franchise since late-2015 has arrested its declining loans and deposits market share in Korea's banking system at 2.0% and 2.4%, respectively, at end-2016. Its high loan growth of 11% in 2016 (versus 4% for the local commercial bank average), which focused on residential mortgages, modestly increased its net interest income base. Fitch estimates that SCBK's underlying operating profits/risk-weighted assets have improved to around 1% but the major contribution continues to be driven by the securities, FX and derivatives operation. SC's de-risking strategy in recent years has resulted in SCBK's risk-weighted assets declining by 14% at end-1H17 from end-2015. The reduction was largely driven by a notable cut in the credit risk-weighted assets of the equity, corporate and non-mortgage retail sectors. Fitch expects the Fitch Core Capital ratio (16.5% at end-1H17) to remain above the local commercial bank average (13.1%) in the near term due to its stable risk appetite, even though further improvement could be limited by its modest internal capital generation. Loans to households and self-employed individuals, in aggregate, represented about 70% of SCBK's total loans at end-1H17, compared with its major local peers' average of about 60%. While it remains unclear how Korea's weakening household debt servicing ability will affect SCBK, Fitch does not see Korea's household debt issue as an imminent systemic one yet because of Korea's relatively strong job security that is backed by strong labour laws and the low interest-rate environment. Fitch expects the precautionary-and-below loans ratio (1.5% at end-1H17) as per the local regulator's loan quality categorisation to remain broadly in line with the local commercial bank average (1.5%). SCBK's loans-to-customer-deposits ratio (125% at end-2016; adjusted for loans and deposits to/from financial institutions) has been relatively stable over the last three years. SCB and its affiliates provide a significant portion of SCBK's foreign-currency funding in support of the latter's sizeable FX and transaction banking operations. RATING SENSITIVITIES IDRS AND SUPPORT RATING The IDRs and Support Rating are sensitive to a change in SCB's Viability Rating or any change in the relationship with its parent. VIABILITY RATING The bank's Viability Rating is sensitive to a change in Fitch's assumptions regarding SCBK's company profile, underlying profitability and operating environment. Fitch may upgrade the Viability Rating if SCBK strengthens its business model and track record of strategic execution, which is likely to be reflected in its better underlying earnings structure. Fitch does not expect a downgrade of the Viability Rating in the near term unless its balance sheet weakens significantly, which may come from a sudden external shock to the operating environment or a significant deterioration in the bank's risk appetite. The rating actions are as follows: SCBK Long-term Foreign-Currency IDR affirmed at 'A'; Outlook Stable Short-term Foreign-Currency IDR affirmed at 'F1' Viability Rating affirmed at 'bbb' Support Rating affirmed at '1' Contact: Primary Analyst Matt Choi Associate Director +82 2 3278 8372 Fitch Australia Pty Ltd, Korea Branch 9F Kyobo Securities Building 97, Uisadang-daero, Yeongdeungpo-Gu Seoul 07327, South Korea Secondary Analyst Heakyu Chang Senior Director +82 2 3278 8363 Committee Chairperson Jonathan Cornish Managing Director +85 2 2263 9901 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Global Bank Rating Criteria (pub. 25 Nov 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below