Bangkok--14 Oct--Fitch Ratings
Fitch Ratings has downgraded Standard Chartered Bank (Thai) Public Company Limited’s (SCBT) Viability Rating to ‘bbb’ from ‘bbb+’ and revised the Outlook on its Long-Term Local-Currency Issuer Default Rating (IDR) to Negative from Stable. The Long-Term Local-Currency IDR is affirmed at ‘A+’.
At the same time, the agency has affirmed SCBT’s Long-Term Foreign-Currency IDR at ‘A-’ with Stable Outlook and National Long-Term Ratings at ‘AAA(tha)’ with Stable Outlook. The full list of rating actions is provided at the end of this commentary.
KEY RATING DRIVERS - IDRs, National Ratings and Support Rating
SCBT’s IDRs, National Ratings and Support Rating reflect Fitch’s belief of an extremely high probability of extraordinary support, if required, from its parent, Standard Chartered Bank (SCB; AA-/Negative). Fitch considers SCBT to be a strategically important subsidiary of SCB due to a strong level of integration with the parent, a past history of ordinary financial support and SCB’s 99.9% stake in SCBT.
The Negative Outlook on SCBT’s Long-Term Local-Currency IDR follows a similar change in the Outlook of SCB on 1 October 2014 (see “Fitch Revises Standard Chartered’s Outlook to Negative; Affirms IDR ‘AA-’” at www.fitchratings.com). However, the Outlook on SCBT’s Long-Term Foreign-Currency IDR is Stable because the rating is capped by Thailand’s Country Ceiling of ‘A-’ and it would not necessarily be impacted by a change in SCB’s Long-Term Foreign-Currency IDR.
KEY RATING DRIVERS – Viability Rating (VR)
The downgrade of the VR is based on deterioration in SCBT’s asset quality. SCBT’s impaired loans have risen to THB7.7bn, or 7.3% of total loans, at end-June 2014 from THB6.3bn, or 6.1% of total loans, at end-2013. The outlook for the operating environment remains difficult, and further deterioration in asset quality is likely. SCBT’s capitalisation provides some buffer - its Tier 1 capital ratio was 21.3% at end-June 2014 compared with an industry average of 13% - although Fitch believes the risks faced by the bank will require it to maintain a strong buffer.
The pressure on SCBT’s asset quality is likely to result in further increases in credit costs while weakness in the operating environment is likely to continue, which will hurt profitability. The VR also takes into account the ordinary support from the parent, especially in global networking, funding, liquidity and risk management.
Rating Sensitivities - IDRs, National Rating and Support Ratings
A change in SCB’s IDRs would lead to similar rating action on SCBT’s Long-Term Local-Currency IDR, but would be unlikely to affect the latter’s Long-Term Foreign-Currency IDR, which is currently capped by Thailand’s Country Ceiling.
A reduction in SCB’s propensity to support SCBT, which, for example, might be seen 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.
Any change in Thailand’s Country Ceiling would have a similar effect on SCBT’s Long-Term Foreign-Currency IDR.
Rating Sensitivities - VR
Material further weakening in asset quality and significant erosion of capital could lead to negative rating action on SCBT’s VR. Positive rating action may follow an improvement in the risk profile of the bank that leads to improved asset quality, provided there is no material weakening of capitalisation and earnings.
The full list of ratings actions follows:
- Long-Term Foreign-Currency IDR affirmed at ‘A-’; Stable Outlook
- Short-Term Foreign-Currency IDR affirmed at ‘F2’
- Long-Term Local-Currency IDR affirmed at ‘A+’; Outlook revised to Negative from Stable
- Short-Term Local-Currency IDR affirmed at ‘F1’
- Viability Rating downgraded to ‘bbb’ from ‘bbb+’
- Support Rating affirmed at ‘1’
- National Long-Term Rating affirmed at ‘AAA(tha)’; Stable Outlook
- National Short-Term Rating affirmed at ‘F1+(tha)’
- National Rating on short-term unsecured and unsubordinated debenture programme affirmed at ‘F1+(tha)’