Bangkok--Aug 26--Fitch Ratings
Fitch Ratings, the international rating agency, has today upgraded Standard Chartered Nakornthon Bank’s (“SCNB”) Long-term foreign currency rating to ‘A-’ (A minus) from ‘BBB+’, Individual rating to ‘C’ from ‘C/D’ and Support rating to ‘1’ from ‘2’. The bank’s Short-term foreign currency rating, meanwhile, was affirmed at ‘F2’. At the same time, the agency assigned SCNB a Long-term local currency rating of ‘A-’ (A minus), Short-term local currency rating of ‘F2’, National Long-term rating of ‘AA+(tha)’ and National Short-term rating of ‘F1+(tha)’. The Outlook on all the ratings is Stable. SCNB’s credit ratings are primarily based on Standard Chartered Bank of the United Kingdom (“SC”, rated ‘A+’/‘F1’) remaining the controlling shareholder. Any change in SC’s shareholding in SCNB and its commitment and support given to SCNB could impact the ratings of SCNB. Since the foreign currency ratings of SCNB are now capped by the country ceiling, any change in Thailand’s country ceiling (which is one rating level above the sovereign rating) will also have an impact on the ratings of SCNB.
SC of the UK has indicated that SCNB will form an integral part of SC’s Asian banking network, with its long-established banking operations in the region incuding Hong Kong, Singapore, India and Malaysia. SC’s stake is intended as a long-term strategic holding and it exercises effective control of the SCNB board and management. The bank will also be shortly renamed as Standard Chartered Bank (Thai) Pcl., resulting in strong name association with the parent. In March 2005, SC raised its stake in SCNB to 99.97% (which has since fallen slightly to 99.73%). SC is also in the process of integrating its Bangkok branch operation with SCNB, which is expected to be completed in October 2005, giving the new entity combined assets of THB139bn. While foreign ownership restrictions may restrict SC injecting additional capital into SCNB after 2009, there is flexibility to strengthen SCNB’s capital base before 2009 to a level which is sufficient for long-term business expansion, in order to minimise dilution of its ownership in SCNB. Given the reputation and resources of SC, Fitch believes that there is an extremely high probability that shareholder support would be forthcoming, if necessary.
In 2004, SCNB reported a net profit of THB763.8 million after setting aside THB1.15 billion of provisions, up from THB720m the previous year. In 1H05, net profit continued to rise to THB760.3m from THB444.6m in 1H04. The improvement in its underlying operations reflects stronger consumer loan growth and improved fee and foreign exchange income.
SCNB’s Loan Management Agreement (“LMA”) with the Financial Institutions Development Fund, through which all the LMA assets were settled without any unforeseen losses to the bank, ended in September 2004. At end-March 2005, SCNB’s non-LMA impaired loans stood at THB1.7bn (4.2% of non-LMA loans) while loan loss reserves for non-LMA loans stood at THB1.2bn, equivalent to 70.9% of non-LMA impaired loans. While high loan growth and the consolidation of SC’s Bangkok branch into the bank could see SCNB’s impaired loans rise above 5% in 2H05, SCNB’s reserve coverage is expected to strengthen to above 100% on the back of stronger reserve coverage of SC’s Bangkok branch and after some of the reserves for LMA loans were transferred to the reserves for non-LMA loans.
At end-March 2005, SCNB’s total capital ratio stood at 10.8% of risk weighted assets with a Tier 1 capital ratio of 9.8%. After the integration between SC’s Bangkok branch and SCNB is completed and after an additional capital injection of THB6.1bn from SC, Tier 1 capital ratio is expected to fall slightly to 9.2% and total capital ratio to 9.6%, although sustained profitability should see capital ratios remaining strong.
Contact: Chaiyapat Paitoon, Vincent Milton, Bangkok +662 655 4762/4759; David Marshall, Hong Kong +852 2263 9963.
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.
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