Singapore, December 22, 2018 -- Moody's Investors Service has today downgraded the subordinated debt rating
of Standard Chartered Bank (SCB) and Standard Chartered PLC (SCPLC) by
one notch to Baa2 from Baa1.
At the same time, all the other ratings, including the SCB's
deposit and senior unsecured debt ratings, and SCPLC's senior
unsecured debt ratings, have been affirmed. SCB's baseline
credit assessment (BCA) has also been affirmed at baa1. The outlook
on the ratings, where applicable, remains stable.
A full list of the ratings affected can be found at the end of this press
release.
SCPLC is the listed holding company of the Standard Chartered group (the
group) and SCB is the group's principal operating subsidiary.
RATINGS RATIONALE
BCA reflects strong capital and liquidity, as well as weak profitability
SCB's baa1 BCA reflects the group's strong capital and liquidity
, as well as its healthy funding structure. The BCA also
factors in the stabilization in the group's asset quality. At the
same time, the BCA also incorporates the weak profitability of the
group.
The bank's asset quality has benefited from the adoption of a more
conservative credit underwriting framework since 2015, as well as
a cyclical recovery following the bank's recognition of, and
provisioning for, legacy bad loans. Moody's assessment
of asset quality also takes into account the market risk inherent in the
bank's business model, as reflected in the high share of non-loan
assets on its balance sheet.
Capital remains a key credit strength for the bank. The current
common equity tier 1 ratio of 14.5% at end-September
2018 is higher than the stated management target of 12-13%.
We expect the bank to continue to maintain CET1 ratio above this target,
in part driven by the imperative to maintain it above hurdle rates set
by the Prudential Regulatory Authority's stress tests.
Profitability remains the weakest part of the bank's credit profile,
due to low revenue growth and a high cost-to-income ratio.
The group's return on assets in H1 2018 was a relatively low 0.4%,
despite a significant reduction in credit costs and strong growth in income
from liability products such as cash management, partly driven by
an increase in interest rates. Full year profitability will be
further reduced by the UK bank levy, which is booked in the fourth
quarter.
Moody's evaluation of the bank's liquidity factors in the
high share of liquid assets on its balance sheet, as well the predominance
of deposits in its funding mix.
Downgrade of subordinated debt ratings driven by a lower volume of subordinated
debt; Loss Given Failure analysis now excludes High Trigger AT1 instruments.
Even after factoring in the forward-looking issuance plan of the
bank, the volume of subordinated debt and the volume of loss-absorbing
capital junior to it are lower than what had been previously factored
into their rating.
This has led to a one-notch downgrade of the subordinated debt
ratings, based on the rating agency's advanced Loss Given
Failure (LGF) analysis, which it applies given that the group is
subject to the UK's operational resolution regime under the EU Bank
Recovery and Resolution Directive.
The loss-given-failure of all other instruments remains
unchanged and hence all other ratings were affirmed.
In addition to factoring in the bank's issuance plan, the
LGF analysis also now excludes 'high trigger' AT1 capital
instruments issued by SCPLC. While these had previously been erroneously
included in the LGF analysis, there was no rating impact arising
from this correction in relation to the last rating action which was in
May 2017.
What Could Change the Ratings Up/Down
SCB's BCA could be downgraded if asset quality were to materially deteriorate
once again. The BCA could also be lowered if profitability were
to fall back to 2016 levels without prospect of a swift recovery.
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 were to decrease significantly, thereby
reducing their protection from loss.
The BCA could be raised if the bank's profitability were to significantly
increase from current levels. SCB's and SCPLC's instrument ratings
could be upgraded if SCB's BCA were raised.
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.
Standard Chartered PLC (SCPLC) is a global bank headquartered in London
with total assets of $684.6 billion at 30 September 2018.
Standard Chartered Bank (SCB )is the principal operating entity of Standard
Chartered PLC.
List of affected ratings:
Standard Chartered PLC
- Local and Foreign currency senior unsecured long-term
debt affirmed at A2; outlook maintained at stable
- Foreign currency senior unsecured long-term MTN program
affirmed at (P)A2
- Foreign currency senior unsecured shelf program rating affirmed
at (P)A2
- Local and foreign currency subordinated debt downgraded to Baa2
from Baa1
- Foreign currency subordinated MTN program downgraded to (P)Baa2
from (P)Baa1
- Local and foreign currency junior subordinated debt affirmed
at Baa3(hyb)
- Local and foreign currency non-cumulative preference shares
affirmed at Ba1(hyb)
- Outlook remains stable
Standard Chartered Bank
- BCA and Adjusted BCA affirmed at baa1
- Long-term CR Assessment affirmed at A1(cr)
- Local and foreign currency long-term deposits affirmed
at A1; outlook maintained at stable
- Foreign currency long-term deposit notes/CD program affirmed
at A1
- Local and foreign currency senior unsecured long-term
debt affirmed at A1; outlook maintained at stable
- Foreign currency senior unsecured long-term MTN program
affirmed at (P)A1
- Foreign currency subordinated debt downgraded to Baa2 from Baa1
- Foreign currency subordinated MTN program downgraded to (P)Baa2
from (P)Baa1
- Local currency junior subordinated debt affirmed at Baa3(hyb)
- Local and foreign currency short-term deposits affirmed
at P-1
- Foreign currency short-term Deposit Note/CD program affirmed
at P-1
- Foreign currency short-term MTN program affirmed at (P)P-1
- Short-term CR Assessment affirmed at P-1(cr)
- Local currency and foreign currency long-term Counterparty
Risk Ratings affirmed at A1
- Local currency and foreign currency short-term Counterparty
Risk Ratings affirmed at P-1
- Outlook remains stable
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: 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
