Bangkok--22 Oct--Fitch Ratings
Fitch Ratings has today upgraded Standard Chartered Bank (Thai) Public Company Limited’s (SCBT) Long-term local currency Issuer Default ratings (IDR) to ‘A’ from ‘BBB+’ with a Stable Outlook, Short-term local currency IDR to ‘F1’ from ‘F2’ and National long-term rating to ‘AAA(tha)’ from ‘AA+(tha)’ with a Stable Outlook. At the same time, the agency affirmed SCBT’s Long-term foreign currency IDR at ‘BBB+’ with a Stable Outlook, Short-term foreign currency IDR at ‘F2’, National short-term rating at ‘F1+(tha)’, Individual rating at ‘B/C’, Support rating at ‘2’ and National short-term unsecured and unsubordinated debenture programme at ‘F1+(tha)’.
SCBT’s upgrade is based on the upgrade of its parent, Standard Chartered Bank’s (SC) Long-term IDR to ‘AA-’ from ‘A+’. The upgrade also reflects a reassessment of support for the Thai subsidiary notwithstanding Thailand’s foreign ownership restriction, which generally limits foreign ownership to 49%. This is unlikely, in Fitch’s view, to prevent a capitalization of SCBT if that was required in the event of financial problems. Also, the overall performance of SCBT has strengthened and is expected to remain strong. SCBT’s Long-term local currency IDR is rated above Thailand’s Long-term local currency of ‘A-’ based on support from its strong foreign parent, as well as limited exposure to government securities and its strong stand-alone financial strength.
SCBT’s International, National and Support Ratings are based on SC remaining the controlling shareholder. As such, a change in SC’s shareholding or support could impact SCBT’s ratings. As SCBT’s Foreign Currency (FC) IDR is capped by the Country Ceiling, a change in Thailand’s Country Ceiling could also affect SCBT’s FC IDR. SCBT’s Support rating is currently constrained by the FC IDR, while a material deterioration in profitability, asset quality or capital could negatively affect its Individual rating.
SC’s 99.9% stake is intended as a long-term strategic holding and it exercises effective control of the SCBT board and management. SC injected THB7.2bn into SCBT in May 2009 to avoid future dilution from foreign ownership restrictions on further capital injections. In the longer term, SCBT may have to depend on retained earnings, asset distribution and Tier 2 capital to mitigate any dilution of SC’s shareholding. Given SC’s reputation and resources, Fitch believes that there would be a high probability of shareholder support, if required.
SCBT’s performance strengthened in H110 as overall economic conditions started to improve. The bank reported significantly stronger unconsolidated net profit of THB1.6bn (H109: 0.2bn) due mainly to lower provisions and higher treasury related fees, with return on assets (ROA) improving to over 1%. SCBT’s impaired loans declined to THB1.7bn (1.9% of total loans) at end-June 2010 on the back of loan write-offs. Although special mention loans rose sharply in 2009 due to a few large troubled corporates, these appear to have stabilised at about THB4bn (4.6% of total loans) at end-June 2010. The improving economic environment, higher collateral coverage and lower delinquency trend resulting from the shift toward secured lending, as well as high reserve coverage of 163.6% at end-June 2010, should help stabilise provisioning costs.
Funding and liquidity remain strong. SCBT’s Tier 1 capital and total capital ratio were strong at 18.1% and 18.3% respectively at end-June 2010. Although SCBT paid out high dividends of THB1.1bn in H110 due to a reassessment of capital requirements, future dividend payment will depend on asset growth. Fitch expects SCBT’s Tier 1 capital to be maintained at a high level, which should provide a strong buffer against a volatile economic and political environment in Thailand. SCBT is currently the eighth-largest Thai commercial bank with a market share of about 3% of assets.