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Rating Action:

Moody's assigns Counterparty Risk Ratings to Standard Chartered Bank and its branches

13 Jun 2018

Ratings are assigned following 6 June 2018 update to Moody's Banks rating methodology

Singapore, June 13, 2018 -- Moody's Investors Service has today assigned Counterparty Risk Ratings to Standard Chartered Bank and its branches located in Singapore, Tokyo, and New York.

Moody's Counterparty Risk Ratings (CRR) are opinions of the ability of entities to honor the uncollateralized portion of non-debt counterparty financial liabilities (CRR liabilities) and also reflect the expected financial losses in the event such liabilities are not honored. CRR liabilities typically relate to transactions with unrelated parties. Examples of CRR liabilities include the uncollateralized portion of payables arising from derivatives transactions and the uncollateralized portion of liabilities under sale and repurchase agreements. CRRs are not applicable to funding commitments or other obligations associated with covered bonds, letters of credit, guarantees, servicer and trustee obligations, and other similar obligations that arise from a bank performing its essential operating functions.

RATINGS RATIONALE

In assigning CRRs to Standard Chartered Bank and its branches, Moody's starts with the banks' adjusted Baseline Credit Assessment (BCA) and uses the agency's existing advanced Loss-Given-Failure (LGF) approach that takes into account the level of subordination to CRR liabilities in the bank's balance sheet and assumes a nominal volume of such liabilities.

For Standard Chartered Bank and its branches, Moody's does not incorporate any government support for CRR liabilities. The current policy direction in the UK clearly suggests that the Government of United Kingdom (Aa2 stable) is unlikely to provide extraordinary support to banks in times of need. Moreover, aside from its headquarters in the UK, the group does not operate a material retail business in the country, thereby making it even less likely that the government would extend support to the group.

While Standard Chartered Bank does operate in other jurisdictions with more supportive regulatory approaches, we would expect any support provided to be ring-fenced to the group's local operations in those jurisdictions. Consequently, while we include market-specific systemic support in the ratings of a number of Standard Chartered PLC (SCPLC)'s subsidiaries and affiliates, such support is not taken into account in rating the UK-incorporated Standard Chartered Bank or SCPLC.

As a result of the volume of subordinated instruments, the CRRs for the Standard Chartered Bank and its branches are three notches higher than Standard Chartered Bank's adjusted BCA of baa1. Although Standard Chartered Bank and its branches whose CRRs receive three notches of uplift from the adjusted BCA of baa1 are likely to have more than a nominal volume of CRR liabilities at failure, this has no impact on the ratings because the significant level of subordination below the CRR liabilities already provides the maximum amount of uplift allowed under Moody's rating methodology.

The CRR assigned reflects Moody's view that secured counterparties to banks typically benefit from greater protections under insolvency laws and bank resolution regimes than do senior unsecured creditors, and that this benefit is likely to extend to the unsecured portion of such secured transactions in most bank resolution regimes. Moody's believes that in many cases regulators will use their discretion to allow a bank in resolution to continue to honor its CRR liabilities or to transfer those liabilities to another party who will honor them, in part because of the greater complexity of bailing in obligations that fluctuate with market prices, and also because the regulator will typically seek to preserve much of the bank's operations as a going concern in order to maximize the value of the bank in resolution, stabilize the bank quickly, and avoid contagion within the banking system. CRR liabilities at the bank therefore benefit from the subordination provided by more junior liabilities. In the case of Standard Chartered Bank, the CRRs assigned are equal to Standard Chartered Bank's senior debt ratings as they already incorporate the maximum amount of uplift allowed under Moody's rating methodology.

The following ratings were assigned:

Standard Chartered Bank --

• Local currency and foreign currency long-term Counterparty Risk Ratings of A1

• Local currency and foreign currency short-term Counterparty Risk Ratings of P-1

Standard Chartered Bank, New York Branch --

• Local currency and foreign currency long-term Counterparty Risk Ratings of A1

• Local currency and foreign currency short-term Counterparty Risk Ratings of P-1

Standard Chartered Bank, Singapore Branch --

• Local currency and foreign currency long-term Counterparty Risk Ratings of A1

• Local currency and foreign currency short-term Counterparty Risk Ratings of P-1

Standard Chartered Bank, Tokyo Branch --

• Local currency and foreign currency long-term Counterparty Risk Ratings of A1

• Local currency and foreign currency short-term Counterparty Risk Ratings of P-1

What Could Change the Rating Up/Down

Standard Chartered Bank's BCA could be raised if there is a significant and sustained improvement in the bank's risk-adjusted profitability. Standard Chartered Bank and SCPLC's instrument ratings could be upgraded if Standard Chartered Bank's BCA is raised.

Standard Chartered Bank's BCA could be lowered if the bank's asset quality deteriorates on a sustained basis. The bank's BCA could also be downgraded if losses persist.

A downgrade of Standard Chartered Bank's BCA would likely affect all the ratings assigned to Standard Chartered Bank and SCPLC. In addition, Standard Chartered Bank and SCPLC's deposit and senior debt ratings could be downgraded if the volume of their junior instruments outstanding decreases significantly, thereby reducing their loss buffers.

The principal methodology used in these ratings was Banks published in June 2018. Please see the Rating Methodologies 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 credit rating action on the support provider and in relation to each particular credit 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 credit rating action, and whose ratings may change as a result of this credit 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.

Srikanth Vadlamani
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Graeme Knowd
MD - Banking
Financial Institutions Group
JOURNALISTS: 81 3 5408 4110
Client Service: 81 3 5408 4100

Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

No Related Data.
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