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Fitch Downgrades Standard Chartered Bank (Thai)'s Local-Currency IDRs
October 17, 2016 / 7:56 AM / a year ago

Fitch Downgrades Standard Chartered Bank (Thai)'s Local-Currency IDRs

(The following statement was released by the rating agency) BANGKOK/SINGAPORE, October 17 (Fitch) Fitch Ratings has downgraded Standard Chartered Bank (Thai) Public Company Limited's (SCBT) Local-Currency Issuer Default Ratings (IDRs). The Long-Term Local-Currency IDR was downgraded to 'A-' from 'A'. The Outlook is Stable. The Short-Term Local-Currency IDR was downgraded to 'F2' from 'F1'. At the same time, the agency has affirmed SCBT's Long-Term Foreign-Currency IDR at 'A-' with a Stable Outlook and SCBT's National Long-Term Rating at 'AAA(tha)' with Stable Outlook. A full list of rating actions is included at the end of this commentary. The rating actions follow Fitch's downgrade of the Viability Rating on SCBT's parent, Standard Chartered Bank (SCB), to 'a' from 'a+' on 14 October 2016 (see "Fitch Affirms Standard Chartered at 'A+'; Outlook Revised to Stable", at KEY RATING DRIVERS IDRS, NATIONAL RATINGS, SENIOR DEBT AND SUPPORT RATING SCBT's IDRs are rated at one notch below SCB's Viability Rating (VR) based on parental support as Fitch believes that SCBT is a strategically important subsidiary of SCB. However, the downgrade of SCB's VR had no impact on SCBT's Foreign-Currency IDR because the rating is already at 'A-' as it was capped by Thailand's Country Ceiling of 'A-'. The Support Rating has been affirmed as Fitch still believes that there is an extremely high probability of extraordinary support from SCB, if needed. The Stable Outlook on SCBT's Long-Term Local-Currency IDR is consistent with the Stable Outlook on SCB's ratings. SCBT's National Ratings and senior debt ratings have been affirmed as its credit profile, as reflected in the Long-Term Local-Currency IDR of 'A-', remains stronger than Thailand's sovereign rating of 'BBB+'. Fitch considers SCBT a strategically important subsidiary of SCB, based on its important role in supporting the group's international banking business and expansion in the Greater Mekong region, near-full ownership of the Thai subsidiary (99.87%), a strong level of integration between the two entities and a history of ordinary support from the parent to the subsidiary. VIABILITY RATINGS SCBT's VR reflects its strong capitalisation, which has been consistently higher than sector averages and its peers with similar VRs. Its Tier-1 capital ratio was 27.17% at end-June 2016 (from19.55% at end-December 2013). The stronger capital ratio was largely driven by loan book contraction due to the bank's de-risking strategy over the recent years. SCBT's risk-weighted assets decreased by around 27% from end-December 2013. The VR also incorporates weaker-than-peer asset quality and profitability as the slower economic growth in Thailand puts pressure on the debt servicing ability of several clients. SCBT's strong financial buffer (in terms of capitalisation and reserve coverage ratio) mitigates its asset quality and earnings risk. Furthermore, the bank's asset quality and profitability could stabilise because its underwriting standards tightened over the past two years and credit cost may decline. RATING SENSITIVITIES IDRS, NATIONAL RATINGS, SENIOR DEBT AND SUPPORT RATING A downgrade of SCB's VR could lead to similar rating action on SCBT's Long-Term Foreign- and Local-Currency IDRs. However, an upgrade of SCB's VR would affect SCBT's Long-Term Local-Currency IDR but not Long-Term Foreign-Currency IDR as the rating will be capped by Thailand's Country Ceiling of 'A-'. SCBT's National Ratings are the highest on Thailand's National Rating scale; hence, there is no upside. A downgrade of SCBT's National Ratings and senior debt rating could occur if SCBT's Long-Term Local-Currency IDR falls below Thailand's Long-Term Local-Currency IDR of 'BBB+'. 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. A change in Thailand's Country Ceiling could have a similar effect on SCBT's Long-Term Foreign-Currency IDR. VIABILTIY RATING 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 capitalisation. The rating actions are as follows: - Long-Term Foreign-Currency IDR affirmed at 'A-'; Outlook Stable - Short-Term Foreign-Currency IDR affirmed at 'F2' - Long-Term Local-Currency IDR downgraded to 'A-' from 'A'; Outlook Stable - Short-Term Local-Currency IDR downgraded to 'F2' from '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)' Contacts: Primary Analysts Ambreesh Srivastava (International Ratings) Senior Director +65 6796 7218 Fitch Ratings Singapore Pte Ltd 6 Temasek Boulevard #35-05 Suntec Tower Four Singapore 038986 Jindarat Laotaveerungsawat, (National Ratings) Associate Director +662 108 0153 Fitch Ratings (Thailand) Limited Park Ventures, Level 17 57 Wireless Road, Lumpini Patumwan, Bangkok 10330 Secondary Analyst Jindarat Laotaveerungsawat, (International Ratings) Associate Director +662 108 0153 Patchara Sarayudh (National Ratings) Director +662 108 0154 Committee Chairperson Mark Young Managing Director +65 6796 7229 Note to Editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(tha)' for National ratings in Thailand. Specific letter grades are not therefore internationally comparable. Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: Additional information is available on Applicable Criteria Global Bank Rating Criteria (pub. 15 Jul 2016) here National Scale Ratings Criteria (pub. 30 Oct 2013) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1013215 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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