Note: On March 14, 2016, the press release was corrected as follows: In the debt list, the following changes were made: The second line under Standard Chartered PLC was changed to “Senior unsecured long-term MTN program downgraded to (P)A1 from (P)Aa3. The fourth line under Standard Chartered Bank was changed to “Long-term deposit notes/CD program downgraded to Aa3 from Aa2”. The sixth line under Standard Charted Bank was changed to “Senior unsecured long-term MTN program downgraded to (P)Aa3 from (P)Aa2”. Revised release follows:
Hong Kong, March 07, 2016 -- Moody's Investors Service has today downgraded Standard Chartered Bank's
(SCB) long-term deposits and senior unsecured debt ratings by one
notch to Aa3 from Aa2, and Standard Chartered PLC's (SCPLC)
senior unsecured debt rating by one notch to A1 from Aa3. Moody's
has also downgraded other long-term ratings of SCB and SCPLC by
one notch.
At the same time, Moody's has affirmed SCB's P-1
short-term deposit and debt rating and SCPLC's Ba1(hyb) Additional
Tier 1 Capital rating.
The outlook on SCPLC's senior unsecured debt and SCB's long-term
deposits and senior unsecured debt is negative.
A full list of the ratings affected can be found at the end of this press
release.
The rating actions conclude a review for downgrade initiated on 9 November
2015 following SCPLC's announcement of a loss in the third quarter
of 2015 and a new strategic plan.
SCPLC is the listed entity of the Standard Chartered Group (the group)
and SCB is the group's principal operating subsidiary.
RATINGS RATIONALE
Standalone BCA
Standard Chartered Group's (the group) asset quality and profitability
deteriorated significantly in 2015, affected by its commodities
and Indian exposures. This led to an increase in the problem loan
ratio to 4.8% at end-2015 from 2.7%
at end-2014. The group reported a net loss of $2.2
billion for 2015.
The group is implementing a number of initiatives to reduce its credit
risk and restore its profitability, including a reduction in risky
exposures and a downsizing of its operations in some of its less profitable
markets. However, Moody's expects profitability to
remain weak for at least two years, and the operating environment
in some of the markets in which Standard Chartered operates has become
more challenging.
On the other hand, Moody's does note various positives.
First, the group's capital position had improved, as
evidenced by a Common Equity Tier 1 ratio of 12.6% at end-2015,
after a recent $5 billion rights issue. In addition,
liquidity and funding remain strong.
Second, the group's risk profile has improved as a result
of reduced levels of borrower concentration and commodities exposure,
following adjustments to its portfolio in 2015. The group also
plans a further $8 billion in risky asset disposals as soon as
possible.
Third, the bank's liquidity profile remains strong.
Its advances-to-deposit ratio was 73% at end-2015
and it holds a large portfolio of high quality liquid assets. Moreover,
because of its strong focus on trade finance, a substantial portion
of its loans are short-term and the natural run-off of its
portfolio has facilitated the bank's reduction of the overall size
of its balance sheet as well as concentrations.
However, Moody's considers that the extent and pace of improvement
in its asset quality could be curbed or delayed by slower economic growth
in its key markets, such as Hong Kong and China, continued
pressure on commodity prices, and currency volatility. Even
though Standard Chartered has thoroughly assessed its loan portfolio and
some early warning indicators of future non-performing loans have
improved materially, the weakening operating environment could result
in a further deterioration in credit quality.
Moody's expects that it will take several years for the group to
significantly improve its profitability, due to additional large
restructuring charges and some structural weaknesses that will take time
to resolve. Although the restructuring is limited in size,
when compared to other UK and international banks, Moody's
believes the implementation of these actions could absorb significant
management time and that it would take some time to grow new businesses
and make up for the revenues lost as a result of the planned disposals.
Any substantial charges or regulatory actions from pending litigation
would also add pressure to the group's profitability.
Instrument Ratings and CRA
Moody's notes that the group's liability structure at end-2015
was broadly unchanged from the previous year. As such, the
one-notch fall in SCB's BCA has resulted in a one-notch
downgrade in SCB's and SCPLC's long-term CR Assessments
and instrument ratings, except for its high-trigger Additional
Tier 1 (AT1) capital securities, based on Moody's Advanced
Loss Given Failure (LGF) analysis.
The three-notch uplift on SCB's long-term deposit
and senior unsecured debt ratings in particular reflects the group's
unique corporate profile and liability structure, which features
a substantial portion of the group's assets outside the operational
resolution regime and a substantial amount of securities that could be
bailed-in during a resolution to the benefit of more senior creditors.
This situation reduces expected loss for depositors and senior creditors
in resolution.
SCPLC's Ba1(hyb) rating for its AT1 capital securities is affirmed,
reflecting its common equity Tier 1 capital ratio of 12.6%
at end-2015.
Moody's rating on high-trigger capital securities is based on the
likelihood of the issuer's capital ratio reaching the conversion trigger,
the probability of a bank-wide failure and loss severity,
if either one or both these events occur. Moody's scenario analysis
concludes that the Ba1(hyb) rating should remain unchanged with SCB's
BCA at a3.
Negative Outlook
Moody's expects a more difficult operating environment in some of
Standard Chartered Group's key markets, such as China and
Hong Kong. This would weigh on the group's asset risk and
profitability over the next 12-18 months. A further effect
is additional downward pressure on its ratings.
What Could Change the Ratings Up/Down
SCB's BCA could be downgraded if the group's restructuring did not
deliver improvement in asset risk and profitability and/or if the operating
environment were to deteriorate beyond Moody's expectations.
A reduction in SCB's BCA would likely affect all the ratings assigned
to SCB and SCPLC. In addition, SCB's 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 cushions.
Ratings upgrades are unlikely, given the negative outlook.
However, the rating outlook could be changed to stable if loan impairments
fall significantly and profitability were to be restored.
SCB's and SCPLC's instrument ratings could be upgraded if SCB's BCA is
raised.
The principal methodology used in these ratings was Banks published in
January 2016. Please see the Ratings Methodologies page on www.moodys.com
for a copy of this methodology.
Standard Chartered PLC (SCPLC) is a global bank headquartered in London
with total assets of $640 billion at end-2015.
Standard Chartered Bank (SCB )is the principal operating entity of Standard
Chartered PLC.
List of affected ratings:
Standard Chartered PLC
- Senior unsecured long-term debt downgraded to A1 with
a negative outlook from Aa3
- Senior unsecured long-term MTN program downgraded to (P)A1
from (P)Aa3
- Subordinated debt downgraded to A3 from A2
- Subordinated MTN program downgraded to (P)A3 from (P)A2
- Junior subordinated debt downgraded to Baa2(hyb) from Baa1(hyb)
- Non-cumulative preference shares downgraded to Baa3(hyb)
from Baa2(hyb)
- High-trigger Additional Tier 1 Capital affirmed at Ba1(hyb)
Standard Chartered Bank
- BCA and Adjusted BCA downgraded to a3 from a2
- Long-term CR Assessment downgraded to Aa3(cr) from Aa2(cr)
- Long-term deposits downgraded to Aa3 with a negative outlook
from Aa2
- Long-term deposit notes/CD program downgraded to Aa3 from Aa2
- Senior unsecured long-term debt downgraded to Aa3 with
a negative outlook from Aa2
- Senior unsecured long-term MTN program downgraded to (P)Aa3
from (P)Aa2
- Subordinated debt downgraded to A3 from A2
- Subordinated MTN program downgraded to (P)A3 from (P)A2
- Junior subordinated debt downgraded to Baa2(hyb) from Baa1(hyb)
- Cumulative preference shares downgraded to Baa2(hyb) from Baa1(hyb)
- Short-term deposits affirmed at P-1
- Short-term Deposit Note/CD program affirmed at P-1
- Short-term MTN program affirmed at (P)P-1
- Short-term CR Assessment affirmed at P-1(cr)
Standard Chartered Bank, New York Branch
- Long-term CR Assessment downgraded to Aa3(cr) from Aa2(cr)
- Short-term CR Assessment affirmed at P-1(cr)
- Commercial paper affirmed at P-1
Standard Chartered Bank, Singapore Branch
- Long-term CR Assessment downgraded to Aa3(cr) from Aa2(cr)
- Long-term Deposit Note/CD Program downgraded to (P)Aa3
with a negative outlook from (P)Aa2
- Short-term Deposit Note/CD Program affirmed at P-1
- Short-term CR Assessment affirmed at P-1(cr)
- Commercial paper affirmed at P-1
Standard Chartered Bank, Tokyo Branch
- Long-term CR Assessment downgraded to Aa3(cr) from Aa2(cr)
- Short-term CR Assessment affirmed at P-1(cr)
- Commercial paper affirmed at P-1
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.
Christine Kuo
Senior Vice President
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 downgrades Standard Chartered's deposit and senior unsecured debt ratings to Aa3; outlook negative
