Bangkok--12 Jan--Fitch Ratings
Fitch Ratings (Thailand) has today upgraded the Individual Rating of Standard Chartered Bank (Thai) (“SCBT”) to ‘B/C’ from ‘C’. Fitch has also affirmed the bank’s Long-term foreign currency Issuer Default rating (“IDR”) at ‘A-’ (A minus), Short-term foreign currency rating at ‘F2’, Long-term local currency IDR at ‘A-’ (A minus), Short-term local currency rating at ‘F2’, Support rating at ‘1’, National Long-term rating at ‘AA+(tha) and National Short-term rating at ‘F1+(tha). The Outlook of the ratings is Stable.
The rating upgrade is due to SCBT’s strong revenue, profitability and capital positions, although, the agency notes that its high exposure to unsecured consumer finance could see greater volatility in asset quality and profitability. SCBT also faces a tougher operating environment in 2007 which could see provisioning costs rise. The bank’s IDRs and Support ratings are predicated on the UK-based Standard Chartered Bank (“SC”) remaining the controlling shareholder. Any change in SC’s shareholding or support could have an impact on these ratings. As the foreign currency ratings of SCBT are capped by the Country Ceiling, any change in Thailand’s Country Ceiling or Sovereign rating will also have an impact on the ratings of SCBT.
SCBT forms an integral part of SC’s Asian banking network. SC’s stake is intended as a long-term strategic holding and it will exercise effective control of the SCBT board and management. After 2009, SC is restricted to inject additional capital into SCBT, and will need to depend on retained earnings growth, asset distribution and Tier 2 capital to mitigate dilution of SC’s shareholding level. Given SC’s reputation and resources, and its Long-term foreign currency IDR of ‘A+’, Fitch believes that there is an extremely high probability of shareholder support, if required.
SCBT’s net income rose to THB1.8bn in 2005, up from THB764.7m in 2004. If the effect of this integration is stripped out, SCBT’s underlying performance still improved, with the combined pre-tax income for SCBT and SC’s Bangkok branch rising by 38%, reflecting strong consumer loan growth and improved fees and foreign exchange income from the consumer banking and wholesale banking businesses. In the first nine months of 2006, (“9M06”), SCBT’s adjusted pre-tax income continued to rise, by 43% year-on-year, due to increasing loan yields, bigger gains on derivative contracts, and higher returns from better liquidity. This followed the settlement in 2005 of the loan management agreement (“LMA”) with the Financial Institutions Development Fund (“FIDF”).
SCBT’s impaired loans fell to 2.8% at end-September 2006 from 3% of total loans at end-2005 mainly due to bad loan write-offs. Its loan loss reserve stood at THB2.5bn or 107.2% of impaired loans at end-September 2006. While this appears relatively strong, a large portion of its book is exposed to higher-risk unsecured consumer loans which could see asset quality deteriorate in 2007 given the weakening operating environment. SCBT’s net impaired loans/equity ratio stood at negative 1% at end-September 2006, the strongest in the sector.
At end-September 2006, SCBT’s Tier 1 capital ratio and total capital ratio stood at 10.8% and 11.2% of total risk-weighted assets (“RWA”) respectively. Capital ratios should remain strong due to the bank’s sustained profitability and strong parent support.
SCBT was established in 1933 by the Wanglee family. The bank is now 99.83% owned by SC. SCBT currently ranks as the 10th-largest commercial bank in the country, with a 1.7% share of loans, a 1.5% share of deposits and a network of 41 branches, mainly located in Bangkok and regional centres.
Contacts: Chaiyapat Paitoon, Vincent Milton, Bangkok +662 655 4762/4759.
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.
National Short-term ratings: ‘F1(tha)’ indicates the strongest capacity for timely payment of financial commitments relative to other issuers or issues in Thailand. Under Fitch’s Thai national rating scale, this rating is assigned to the "best" credit risk relative to all others in Thailand and is normally assigned to all financial commitments issued or guaranteed by the Thai government. Where the credit risk is particularly strong, a "+" is added to the assigned rating.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com . Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.