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Rating Action:

Moody's downgrades Standard Chartered Bank (Singapore) Limited's ratings, concludes review

14 Mar 2019

Singapore, March 14, 2019 -- Moody's Investors Service has downgraded the long-term issuer and deposit ratings of Standard Chartered Bank (Singapore) Limited (SCBSL) to A1 from Aa3. Moody's has also downgraded the bank's Baseline Credit Assessment (BCA) to a3 from a2.

The rating action concludes the review for downgrade on SCBSL's ratings and assessments initiated on 22 February 2018, and is in line with the rating agency's likely impact analysis published on that date. The review was concluded because SCBSL is close to finalizing its merger with the Singapore branch of Standard Chartered Bank (A1 deposits and senior unsecured ratings). The ratings of SCBSL are now at the same level as those of Standard Chartered Bank.

Consequently, Moody's has also downgraded the bank's long-term Counterparty Risk Assessment to Aa3(cr) from Aa2(cr), and Counterparty Risk Rating to Aa3 from Aa2.

All short-term ratings and assessments were confirmed.

RATINGS RATIONALE

The long-term ratings and assessments were downgraded by one notch because the inclusion of the branch's operations into SCBSL will moderately weaken the credit profile of SCBSL. The merger will lead to higher asset risk for SCBSL because of the inclusion of corporate loans, compared to its previously lower-risk retail focused operations.

While SCBSL's nonperforming loans (NPL) ratio will decrease after the consolidation, because problem loans at the branch will not be transferred to SCBSL, Moody's expects that the NPL ratio of the merged bank will gradually normalize at a moderately higher level.

At the same time, Moody's has lowered the weighted Macro Profile for SCBSL to Strong+ from Very Strong- to take into account the fact that some of the branch's corporate clients are active internationally and/or regionally and have higher risks on average than entities operating solely or mostly in Singapore.

As part of the business transfer, the group will inject more than USD2.5 billion in CET1 capital into SCBSL, to compensate for the additional risk-weighted assets. The new capital, together with the transition to advanced modeling for risk-weighted assets, will result in a CET1 ratio of above 11%, mostly unchanged from the pre-merger SCBSL. More CET1 capital will likely be provided later in 2019 from the parent to facilitate the migration of the residual Financial Markets assets.

Profitability will improve for the post-merger SCBSL. The top-line will be supported by the more profitable corporate and institutional banking, commercial banking and private banking operations, and the more efficient deployment of liquidity. Moody's also expects that growth in operating expenses will be measured, while credit costs will be modest because of significant derisking in the corporate portfolio.

The funding profile will weaken moderately, because the combined entity will have a somewhat higher reliance on market funding. The liquidity profile will remain stable and strong, with a high buffer of high-quality liquid assets.

AFFILIATE AND GOVERNMENT SUPPORT

The ratings of SCBSL do not incorporate any uplift due to affiliate support from Standard Chartered PLC (A2 senior unsecured rating) — the ultimate holding company of the group — because the group's baa1 BCA is lower than the a3 BCA of SCBSL.

Moody's applies a high support probability to SCBSL from the Singapore government (Aaa stable), which results in a two-notch uplift to its A1 deposit and issuer ratings. SCBSL is classified as a domestic systemically important bank by the Monetary Authority of Singapore, and has significant market shares in domestic deposits and loans.

WHAT COULD CHANGE THE RATINGS UP/DOWN

Moody's could upgrade SCBSL's deposit and issuer ratings if there is an improvement in the bank's solvency and liquidity metrics.

However, Moody's could downgrade the credit ratings, if the bank pursues overly aggressive loan growth, thereby increasing its risk profile, and/or the bank's financial ratios deteriorate significantly.

Standard Chartered Bank (Singapore) Limited is headquartered in Singapore, and is 100% owned by Standard Chartered Bank.

The principal methodology used in these ratings was Banks published in August 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

LIST OF AFFECTED RATINGS AND ASSESSMENTS

• Long-term local and foreign currency issuer ratings downgraded to A1 from Aa3; outlook changed to stable from review for downgrade

• Short-term local and foreign currency issuer rating confirmed at P-1;

• Long-term local and foreign currency bank deposit ratings downgraded to A1 from Aa3; outlook changed to stable from review for downgrade;

• Short-term local and foreign currency bank deposit ratings confirmed at P-1;

• BCA and adjusted BCA downgraded to a3 from a2;

• Long-term CR Assessment downgraded to Aa3(cr) from Aa2(cr);

• Short-term CR Assessment confirmed at P-1(cr);

• Long-term Counterparty Risk Rating downgraded to Aa3 from Aa2;

• Short-term Counterparty Risk Rating confirmed at P-1;

• Outlook for the bank revised to stable from review for downgrade.

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.

Eugene Tarzimanov
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: 852 3758 1350
Client Service: 852 3551 3077

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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