Rating actions due to upgrade in parent's unsupported ratings
Singapore, November 30, 2010 -- Moody's Investors Service has affirmed all the ratings of three subsidiaries
of Standard Chartered Bank (SCB; A1, B-/A1): Standard
Chartered Bank (Hong Kong) Limited (SCBHK) at Aa3 for deposits,
Standard Chartered Bank Malaysia Berhad (SCBM) at A3 and Standard Chartered
Bank (Thai) Public Company Limited (SCBT) at A3. The affirmed ratings
carry stable outlooks.
At the same time, Moody's has raised all the ratings of another
subsidiary, Standard Chartered First Bank Korea (SCFB) to A1 from
A2 for deposits. The revised ratings carry stable outlooks.
These actions follow Moody's rating upgrades on SCB on November 26,
2010 when its bank financial strength rating (BFSR) was raised to B-
from C+, which then mapped to a baseline credit assessment
(BCA) of A1 from A2. See press release of November 26, 2010
for greater discussion of the changes.
The complete list of ratings and actions are at the end of the press release.
SCBHK's Aa3 global local currency (GLC) deposit rating incorporates the
bank's BCA of A1 as well as Moody's assessment of very high probability
of support from the Standard Chartered group and high probability of systemic
support from the Hong Kong government, which results in a one-notch
uplift of the bank's deposit rating to Aa3. The upgrade of
SCB's BCA does not lead to a change in SCBHK's deposit rating
-- which is already higher than that of SCB at A1 and Standard Chartered
PLC at A2 -- as it already takes into account the high likelihood
of systemic support from the Hong Kong government.
SCBM's A3 foreign currency deposit rating incorporates the bank's
BCA of Baa1; Moody's assessment that there is a very high probability
that its parent, SCB, would provide support; and a high
probability of systemic support. However, because SCBM's
deposit rating is already constrained by the A3 ceiling for foreign currency
deposits in Malaysia, the change in the ratings of its parent does
not lift SCBM's deposit rating any higher.
SCBT's A3 local-currency deposit rating incorporates the bank's
BCA of Baa3; Moody's assessment that there is a very high probability
of support from its parent, SCB; and a high probability of
systemic support. However, because the rating of SCBT already
benefits from high systemic support in Thailand, the upgrade of
the parent is not sufficient, under Moody's Joint Default
Analysis methodology, to result in a similar upgrade in SCBT's
A3 deposit rating.
SCFB's debt and deposit ratings, which benefit from high parental
support, were upgraded to A1, reflecting the enhanced capacity
for SCB to provide support to SCFB, given SCB's stronger stand-alone
financial health as a result of its USD5.2 billion rights issue.
The upgrade of SCFB's BFSR to C- -- which maps
to a BCA of Baa2 -- is underpinned by the positive trajectory
of SCFB's performance in franchise and financial fundamentals under
its parent, which acquired the former Korea First Bank in 2005.
Moody's also considered the substantial benefits that SCFB receives
from being part of the Standard Chartered group, including a global
brand name, formidable franchise, vast resources, strong
capital and management skills. These advantages are expected to
continue to enhance SCFB's own franchise and prospects.
SCFB's balance sheet is moderately strong with solid capital levels,
sound asset quality, and sound liquidity as SCFB has maintained
a loan to deposit ratio below 100% since September 2008.
At end-2009, the loan to deposit ratio was 95.2%.
Importantly, in determining SCFB's BFSR, Moody's also
assessed the bank's capital after incorporating expected losses in its
risk assets using scenario analysis. This approach is consistent
with Calibrating Bank Ratings in the Context of the Global Financial Crisis
published in February 2009 and the assumptions in Moody's Approach
to Estimating Korean Bank Credit Losses published in September 2009.
Under Moody's worst-case scenario analysis, SCFB remained
economically solvent; and its capital was at similar levels to those
of banks in the higher C-/Baa2 rating band.
Asset quality is not a credit issue for SCFB. The bank's
non-performing loan ratio was 1.15% at end-2009
versus the system ratio of 1.22%. In addition,
loan growth for the past four years has been pedestrian so there is less
threat of credit problems emerging as the loan book seasons. Furthermore,
SCFB's loan book comprises a substantial 54% of relatively
lower-risk mortgage loans.
Although its earnings trend is not well established, SCFB's
core profitability has improved. However, the result is slightly
lower than the profitability ratios of other higher rated Korean banks.
Efficiency has also improved with the cost income ratio in the low 50%
In terms of strategy, SCFB has successfully achieved a more balanced
revenue mix between its wholesale and consumer banking operations.
This strategy is consistent with the SCB group's global strategy.
A risk, in Moody's opinion, is SCFB's management
of its significant derivatives balances. As part of SCFB's
plans to develop its wholesale banking business, it has become a
relatively large derivatives player in the Korean market. Consequently,
the proportion of derivatives in the balance sheet based on Korean IFRS
was 12% at end-2009 although this was as high as 22%
PREVIOUS RATING ACTIONS & PRINCIPAL METHODOLOGIES
The last rating action on SCBHK was taken on February 10, 2010 when
the junior subordinated debt rating was downgraded to A2 from A1 following
the methodology revision for hybrid securities.
The last rating action on SCBM was taken on July 20, 2009 when Moody's
concluded the review of the deposit and debt ratings of nine Malaysian
banks initiated on May 20, 2009 to examine the systemic support
assumption used in Moody's Joint-Default Analysis application.
The last rating action on SCBT was taken on October 28, 2010 when
the outlooks on SCBT's foreign currency long-term deposit
rating of Baa1 and issuer rating of A3 were revised to stable from negative,
following the sovereign outlook change.
The last rating action on SCFB was on February 11, 2010, when
its junior subordinated debt (Upper Tier 2) rating under its MTN programme
was downgraded to Baa1 from A3. The instrument was rated two notches
below the bank's Bank Debt Rating to reflect its lower status in
liquidation, ranking senior to Hybrid Tier 1 Notes and common equity
and junior to Lower Tier II subordinated debt. The revised rating
carried a stable outlook.
The principal methodologies used in these ratings were Bank Financial
Strength Ratings: Global Methodology published in February 2007,
and Incorporation of Joint-Default Analysis into Moody's Bank Ratings:
A Refined Methodology published in March 2007.
SCBHK, headquartered in Hong Kong, had assets of HKD690 billion
(USD88.9 billion) as of June 2010.
SCBM, headquartered in Kuala Lumpur, Malaysia, had assets
of MYR45,125 million (USD14,326 million) as of June 2010.
SCBT, headquartered in Bangkok, Thailand, had assets
of THB249,931 million (USD8,401 million) as of June 2010.
SCFB, headquartered in Seoul, had assets of KRW68 trillion
(USD59 billion) as of end-2009.
The detailed ratings and actions are:
SCBHK: All its ratings were affirmed with stable outlooks:
BFSR of B- which maps to a BCA of A1; foreign-currency
deposit of Aa3/P-1; local-currency deposit of Aa3/P-1;
foreign-currency issuer of Aa3; foreign-currency subordinated
of A1; local-currency subordinated of A1; foreign-currency
senior unsecured MTN of (P)Aa3; foreign-currency subordinated
MTN of (P)A1; foreign-currency junior subordinated MTN of
(P)A2; and foreign-currency other short term of (P)P-1.
SCBM: All its ratings were affirmed with stable outlooks:
BFSR of C- which maps to a BCA of Baa1 and foreign-currency
long-term/short-term deposit of A3/P-1.
SCBT: All its ratings were affirmed with stable outlooks:
BFSR of D+ which maps to a BCA of Baa3; foreign-currency
long-term/short-term deposit of Baa1/P-2; GLC
deposit of A3/P-1; foreign-currency issuer of A3/P-2;
and local-currency issuer of A3/P-1.
SCFB: The following ratings were raised: GLC deposit to A1
from A2; foreign currency long-term deposit to A1 from A2;
foreign currency senior/subordinated debt to A1/A2 from A2/A3; and
BFSR to C-, which maps to a BCA of Baa2 from D+,
which mapped to Baa3. The foreign currency short-term debt
and deposit rating of Prime-1 was unaffected and continues to carry
a stable outlook.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings and public information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service Singapore Pte. Ltd.
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MD - Financial Institutions
Financial Institutions Group
Moody's Investors Service Hong Kong Ltd.
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Moody's takes multiple actions on 4 subsidiaries of Standard Chartered Bank
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