June 28, 2017 / 1:58 AM / a year ago

Fitch Assigns Standard Chartered Bank (China) 'A' Rating; Outlook Stable

(The following statement was released by the rating agency) HONG KONG, June 27 (Fitch) Fitch Ratings has assigned Shanghai-based Standard Chartered Bank (China) Limited (SCB China) a Long-Term Issuer-Default Rating (IDR) of 'A' and a Short-Term IDR of 'F1'. The Outlook is Stable. A Support Rating (SR) of '1' has also been assigned. A full list of rating actions is at the end of this commentary. KEY RATING DRIVERS IDRS AND SR The ratings assigned reflect Fitch's view of the strong ability and propensity of its parent, UK-based Standard Chartered PLC (SC; A+/Stable/a) and its main operating subsidiary Standard Chartered Bank (SCB; A+/Stable/a), to extend timely and extraordinary support to its wholly owned subsidiary in China, if required. The IDR on SCB China aligns with the Viability Rating (VR) of SCB on the basis of shared businesses, strategic priorities, risk appetite, management and brand identity. The Long-Term IDRs and senior debt ratings of SC and SCB are one notch above their VRs because we believe the risk of default on senior obligations, as measured by the Long-Term IDRs, is lower than the risk of the entities failing, as measured by their VRs. This is because of the presence of a significant junior debt buffer. The uplift does not apply to SCB China as the bank does not benefit from similar buffers. Fitch expects SCB China to continue to play a key role in supporting SC's strategy due to its long-established 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. SCB China's focus on growing Chinese sectors such as technology and biotech, small and medium-sized enterprises and affluent retail clients, and investing in digital capabilities are integral to SC's priorities in China. Fitch believes that a default by SC's China subsidiary would constitute a significant reputational risk to SC that could undermine its franchise in China and damage its global reputation as a network bank. We believe SC has a strong ability to support SCB China, considering the small size of the China subsidiary (4% of SC's assets at end-2016) and SC's strong capitalization and solid liquidity profile. SCB China accounted for 5% of SC's total revenue, 4% of gross customer loans and 5% of total customer deposits at end-2016. SCB China's integration with SC in terms of asset and liability management primarily stems from it placing excess liquidity with the parent bank and other SC entities (end-2016: net placement of CNY7.8 billion). The China subsidiary is mainly deposit-funded with loans only accounting for 34.5% of assets at end-2016. Fitch does not assign a VR to SCB China as its strategy and operations are closely aligned with those of its parent. In addition, SCB China's access to funding significantly benefits from its association with SC as the majority of its deposits stems from SC's network customers. The Stable Outlook of the bank mirrors that of its parent. RATING SENSITIVITIES IDRS AND SR SCB China's IDR and SR are sensitive to Fitch's assumptions about the ability or propensity of SC to extend extraordinary support in a timely manner. A decline in SCB China's relevance for SC's strategy would be negative for the rating. Any change in SC's VR is likely to lead to similar rating action on SCB China, subject to China's Country Ceiling which is currently at 'A+'. The rating actions are as follows: Long-Term Foreign Currency IDR at 'A'; Outlook Stable Short-Term Foreign Currency IDR at 'F1' Support Rating 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 Sabine Bauer Senior Director +852 2263 9966 Committee Chairperson Tim Roche +61 2 8256 0310 Senior Director Date of Relevant Rating Committee: 23 June 2017 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 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. 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