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Rating Action:

Moody's Confirms Standard Chartered Bank (Hong Kong)'s Deposit and Senior Unsecured Debt Ratings at Aa3; Outlook Negative

12 May 2015

Hong Kong, May 12, 2015 -- Moody's Investors Service, ("Moody's") has today confirmed Standard Chartered Bank (HK) Limited's Aa3 deposit ratings, Aa3 issuer rating, and (P)Aa3 senior unsecured MTN program rating. At the same time, Moody's has confirmed the bank's baseline credit assessment (BCA) and adjusted BCA at a1, subordinated debt and MTN program ratings at A2/(P)A2, junior subordinated MTN program rating at (P)A3, and affirmed its short-term deposit and MTN program ratings at P-1/(P)P-1. The rating actions follow the conclusion of the rating agency's review on 17 March 2015 that the publication of its new Banks methodology prompted.

Moody's has also assigned a counterparty risk (CR) assessment of Aa2(cr)/P-1(cr) to Standard Chartered Bank (Hong Kong).

The outlook on the bank's deposit and senior unsecured ratings is negative. Moody's has withdrawn the outlooks on all of the bank's junior instrument ratings covered in this press release. It has withdrawn these outlooks for its own business reasons. Please refer to Moody's Investors Service's Policy for Withdrawal of Credit Ratings, available on its website, www.moodys.com. Outlooks are now only assigned to the bank's long-term senior debt and deposit ratings, indicating the direction of any rating pressures.

Please click this link for Moody's new Banks methodology: http://www.moodys.com/viewresearchdoc.aspx?docid=PR_320662.

RATINGS RATIONALE

The conclusion of the reviews follow Moody's publication of its updated bank rating methodology. The revised methodology, "Banks", contains new aspects that Moody's has devised in order to help accurately predict bank failures and determine how each creditor class is likely to be treated when a bank fails and enters resolution. The new aspects capture insights gained from the crisis and the fundamental shift in the banking industry and its regulation.

The confirmation of Standard Chartered Bank (Hong Kong)'s BCA takes into account the bank's well-established franchise in Hong Kong, very strong liquidity profile, and improving capitalization. It also factors in the bank's resilient asset quality metrics.

The bank's problem loan ratio rose modestly in 2014 due to impairment on a small number of Mainland-related loan exposures. Impaired loan ratio rose to 0.59% at end-2014 from 0.43% at end-2013. Although conditions remain challenging for Mainland borrowers, we do not expect the bank's asset quality metrics to deteriorate to any significant extent in 2015.

Meanwhile, partly in anticipation of more stringent regulatory capital requirements from the Hong Kong authorities, the bank has improved its capitalization in both 2013 and 2014, although the bank's tangible common equity/total assets ratio remains at the low end of the range among Hong Kong banks. The bank's relatively high balance sheet leverage continues to weigh negatively on its financial profile, and contributes to the negative outlook on its ratings.

The bank is the fourth largest bank in Hong Kong in terms of total assets and has strong market positions in retail and corporate banking. It has strong deposit gathering capability due to its strong branch network and status as one of three note-issuing banks. The bank's relatively strong liquidity profile underpins its high standalone assessment.

The bank's adjusted BCA is the same as its BCA at a1. Although the bank is of strategic importance to its parent, we do not factor in any affiliate support uplift in the bank's adjusted BCA, as the bank's BCA is higher than that of its parent.

We currently apply basic loss given failure framework to the bank. The bank's legacy subordinated debt are rated one notch below the adjusted BCA, while the legacy undated junior subordinated debt are rated two notches below the adjusted BCA.

SYSTEMIC SUPPORT

We assess the likelihood of Hong Kong government support for Standard Chartered Bank (Hong Kong)'s senior unsecured debt and deposits as high. This reflects the bank's sizable share of retail and corporate deposits in Hong Kong and its importance in the local payment system. The high likelihood of support leads to one notch of systemic support uplift in the bank's deposit and senior unsecured debt ratings.

Expected government support for senior unsecured creditors and depositors will likely weaken when the authorities introduce the revised bank resolution regime at the beginning of 2016. On the other hand, the revised resolution framework will introduce a bail-in regime in Hong Kong. In a bail-in scenario, the bank's senior unsecured creditors and depositors will benefit from subordination of claims of junior creditors.

What Could Change the Rating - Up

The bank's current ratings are high and a rating upgrade is unlikely in the near term.

What Could Change the Rating - Down

The bank's ratings could be downgraded if its capitalization weakens, with tangible common equity/risk weighted assets ratio falling below 14%. The bank's ratings could also be downgraded if asset quality metrics weakens significantly, with problem loan ratio rising above 1%.

ASSIGNING OF COUNTERPARTY RISK ASSESSMENTS

As part of today's actions, Moody's has assigned a Counterparty Risk Assessment (CR Assessment) to Standard Chartered Bank (Hong Kong). The CR Assessment reflects an issuer's probability of defaulting on certain bank operating liabilities and other contractual commitments, but it is not a rating. The CR Assessment takes into account the issuer's standalone strength as well as the likelihood of affiliate and government support in the event of need, reflecting the anticipated seniority of these obligations in the liabilities hierarchy. The CR Assessment also incorporates other steps authorities can take to preserve the key operations of a bank should it enter a resolution.

The principal methodology used in these ratings was Banks published in March 2015. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

The first name below is the lead rating analyst for this Credit Rating and the last name below is the person primarily responsible for approving this Credit Rating.

Sonny Hsu
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Stephen Long
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Moody's Confirms Standard Chartered Bank (Hong Kong)'s Deposit and Senior Unsecured Debt Ratings at Aa3; Outlook Negative
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

​​​​
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