Bangkok--21 Sep--Fitch Ratings
Fitch Ratings has affirmed Standard Chartered Bank (Thai) Public Company Limited's (SCBT) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDR) at 'A-' with a Stable Outlook. At the same time, the agency has affirmed SCBT's National Long-Term Rating at 'AAA(tha)'. A full list of rating action is at the end of this commentary.
KEY RATING DRIVERS
IDRS, NATIONAL RATINGS, SENIOR DEBT AND SUPPORT RATING
Fitch has used its institutional-support framework to rate SCBT. The agency believes the bank would benefit from extraordinary support from its parent, Standard Chartered Bank (SCB, A+/Stable/a). This is based on near-full (99.87%) ownership of the Thai subsidiary, SCBT's important role in supporting the group's international business, close operational integration, full management control and brand sharing.
However, Fitch sees SCBT as less important to the parent compared with SCB's other subsidiaries due to its smaller size and non-core market location. Hence, Fitch rates SCBT's IDRs one notch below SCB's Viability Rating. The rating approach is similar to that taken for Thailand's other rated foreign subsidiary banks.
Fitch has also affirmed SCBT's Support Rating, as we believe there is an extremely high probability of extraordinary support from SCB, if needed.
The Stable Outlook reflects parent's stable credit profile.
SCBT's National Ratings and the ratings of its senior debt have been affirmed, as the bank's credit profile, as reflected in the Long-Term Local-Currency IDR of 'A-', remains stronger than the Thailand's sovereign Long-Term Local-Currency IDR of 'BBB+'.
VIABILITY RATING
SCBT's Viability Rating is supported by the bank's solid capitalisation, strong liquidity and moderate risk appetite. SCBT has changed its business model to focus on transactional banking and financial market products rather than corporate lending. This should support fee income growth with a modest rise in risk assets.
SCBT's capitalisation is among the strongest in the Thai banking industry, with a Fitch Core Capital ratio of 39.5% as of end-June 2018. Fitch expects the bank to sustain the above-industry-average capital ratio over the medium-term and commensurate with its risk, despite potential capital repatriation.
The Viability Rating also reflects Fitch's expectation that SCBT's profitability will gradually improve over the medium-term, led by higher revenue and lower provisioning. Asset quality pressure should subside, since the bank no longer focuses on corporate lending. Furthermore, there has been a substantial decline in new non-performing loan formation and the bank had a reasonable loan-loss coverage buffer of 124% at end-June 2018.
RATING SENSITIVITIES
IDRS, NATIONAL RATINGS, SENIOR DEBT AND SUPPORT RATING
A downgrade of SCB's Viability Rating would have a similar effect on SCBT's Long-Term Foreign- and Local-Currency IDRs. An upgrade would affect SCBT's Long-Term Local-Currency IDR, but not its Long-Term Foreign-Currency IDR, as the rating is capped by Thailand's Country Ceiling of 'A-'.
SCBT's National Ratings are already at the top-end of the scale, meaning there is no rating upside. Fitch may downgrade the ratings if SCBT's Long-Term Local-Currency IDR falls below Thailand's Long-Term Local-Currency IDR of 'BBB+', but Fitch believes this is unlikely to occur over the medium-term due to the one-notch differential and Stable Outlook.
Fitch may revise SCBT's Long-Term IDRs if there is a change in its parent's propensity to provide extraordinary support. This may occur if the parent significantly reduces its ownership or financial commitments, which could lead to negative rating action. A downgrade of Thailand's Country Ceiling could have a similar effect on SCBT's Long-Term Foreign-Currency IDR.
VIABILTIY RATING
The Viability Rating is unlikely to be upgraded over the medium-term unless SCBT significantly strengthens its overall credit profile, particularly earnings and asset-quality. A substantial increase in risk appetite, which leads to a sustained deterioration in asset quality or liquidity beyond Fitch's expectations could lead to negative rating action on the Viability Rating.
The rating actions are as follows:
Standard Chartered Bank (Thai) Public Company Limited
- Long-Term Foreign-Currency IDR affirmed at 'A-'; Outlook Stable
- Short-Term Foreign-Currency IDR affirmed at 'F2'
- Long-Term Local-Currency IDR affirmed at 'A-'; Outlook Stable
- Short-Term Local-Currency IDR affirmed at 'F2'
- 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)'