Singapore, May 02, 2017 -- Moody's Investors Service has today downgraded Standard Chartered Bank's
(SCB) long-term deposits and senior unsecured debt ratings by one
notch to A1 from Aa3, and Standard Chartered PLC's (SCPLC) senior
unsecured debt rating by one notch to A2 from A1. 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 rating and SCPLC's Ba1(hyb) Additional Tier 1 Capital rating,
while downgrading SCB's Baseline Credit Assessment (BCA) and adjusted
BCA to baa1.
The outlook on SCPLC's senior unsecured debt and SCB's long-term
deposits and senior unsecured debt has been changed to stable from negative.
A full list of the ratings affected can be found at the end of this press
release.
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
The downgrade of SCB's BCA to baa1 from a3 primarily reflects its
profitability, which Moody's expects will be structurally
lower following management efforts to de-risk SCB's balance
sheet. SCB management has targeted a return on equity (ROE) of
8-10% over the medium term, which is lower than the
average ROE for banks operating in all of SCB's key markets (China,
India, Hong Kong, Singapore, and the UAE), except
Korea. In earning a return on capital below that of its peers,
SCB's long-run returns may be insufficient to cover the risks
inherent in its key operating markets.
Moreover, the bank faces challenges in materially improving revenues
in its wholesale banking business while operating at a much lower level
of risk appetite. At its peak, wholesale bank profitability
was driven by a higher risk appetite that led to significant asset quality
issues over the past two years. Trends over the past 18 months
, including for the quarter ending March 2017, indicate that
it would be a challenge for the bank to generate a similar level of revenue
and profitability while operating at a much lower level of risk tolerance.
As a result, while profitability will recover from its current very
low levels, signs of which were visible in the latest quarter,
it will remain materially below the levels seen during 2009-13.
The bank has been proactive in NPL recognition, while management
actions since 2015 have significantly de-risked the loan book.
As a result, Moody's expects NPL ratios and credit costs at
SCB will be better in the next two years than in the past three years.
Lower credit costs and the absence of one-off items should lead
to a recovery in profitability from the losses experienced in the last
two years. Moody's also expects a mild recovery in revenues
as loan growth resumes, following the de-risking efforts.
In the quarter ending March 2017, the bank reported a sharp pick-up
in profits. But this was largely driven by a significant decline
in credit costs, which came in at 30bps (as % of loan book)
compared to 93bps for the full year 2016, and an uptick in asset
liability management revenues which tend to be volatile. While
Moody's expects credit costs in 2017 to be lower compared to 2016,
the decline may not be to the extent seen during this quarter.
On the other hand, core client revenues saw little improvement,
remaining at the same level as was seen in 2016.
Finally, Moody's expects the bank's CET1 ratio will
remain around the current high level, driven by muted balance sheet
growth.
Instrument Ratings and CRA
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 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.
The large volume of junior debt instruments that could be bailed during
resolution to the benefit of senior creditors at SCPLC, as well
as the large volume of senior unsecured debt at SCPLC itself, reduces
the expected loss for these creditors. The rating of SCPLC senior
unsecured debt makes the assumption that a portion of the loss-absorbing
debt at the holding company level could be down streamed to support SCB's
subsidiaries, thus reducing the buffers available to absorb the
losses at SCB.
SCPLC's Ba1(hyb) rating for its AT1 capital securities is affirmed,
reflecting its common equity Tier 1 capital ratio of 13.6%
at end-2016. These instruments are now rated at the non-viability
cap of adjusted BCA minus three notches.
Moody's rating on high-trigger capital securities is based on the
likelihood of the issuer's capital ratio reaching the conversion trigger
and the probability of a bank-wide failure and loss severity
What Could Change the Ratings Up/Down
SCB's BCA could be downgraded if asset quality sees a further sustained
deterioration. The BCA could also be downgraded if profitability
remain at around the levels seen in 2016 for a sustained period of time.
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.
The BCA could be raised if the bank's profitability goes back to
the pre-2014 levels. 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 Rating 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 $647 billion at end-2016.
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 A2 from
A1; outlook changed to stable from negative
- Senior unsecured long-term MTN program downgraded to (P)A2
from (P)A1
- Subordinated debt downgraded to Baa1 from A3
- Subordinated MTN program downgraded to (P)Baa1 from (P)A3
- Junior subordinated debt downgraded to Baa3(hyb) from Baa2(hyb)
- Non-cumulative preference shares downgraded to Ba1(hyb)
from Baa3(hyb)
- High-trigger Additional Tier 1 Capital affirmed at Ba1(hyb)
- Outlook changed to stable from negative
Standard Chartered Bank
- BCA and Adjusted BCA downgraded to baa1 from a3
- Long-term CR Assessment downgraded to A1(cr) from Aa3(cr)
- Long-term deposits downgraded to A1 from Aa3; outlook
changed to stable from negative
- Long-term deposit notes/CD program downgraded to A1 from
Aa3
- Senior unsecured long-term debt downgraded to A1 from
Aa3; outlook changed to stable from negative
- Senior unsecured long-term MTN program downgraded to (P)A1
from (P)Aa3
- Subordinated debt downgraded to Baa1 from A3
- Subordinated MTN program downgraded to (P)Baa1 from (P)A3
- Junior subordinated debt downgraded to Baa3(hyb) from Baa2(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)
- Outlook changed to stable from negative
Standard Chartered Bank, New York Branch
- Long-term CR Assessment downgraded to A1(cr) from Aa3(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 A1(cr) from Aa3(cr)
- Long-term Deposit Note/CD Program downgraded to (P)A1
from (P)Aa3
- 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
- Outlook changed to stable from negative
Standard Chartered Bank, Tokyo Branch
- Long-term CR Assessment downgraded to A1(cr) from Aa3(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 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
Gene Fang
Associate Managing Director
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
