Outlook On Standard Chartered Bank Korea Revised To Positive; Issuer Ratings Affirmed; Hybrid Issue Downgraded

Tuesday 23 September 2014 15:32
HONG KONG (Standard & Poor's) Sept. 23, 2014--Standard & Poor's Ratings Services today said that it had revised to positive from stable the outlook on its 'A+' long-term issuer credit rating on Standard Chartered Bank Korea Ltd. (SCBK). The action follows our outlook revision on the long-term foreign currency ratings on Korea (foreign currency A+/Positive/A-1; local currency AA-/Stable/A-1+) (see "Outlook On Korea Foreign Currency Rating To Positive On Steady Economic Performance; Ratings Affirmed At 'A+/AA-'," published Sept. 19, 2014). We also affirmed our issuer credit ratings on SCBK.

At the same time, based on our new hybrid criteria published on Sept. 18, 2014, we lowered to 'BBB+' from 'A-' our rating on SCBK's US$300 million Tier 1 hybrid securities that carry a coupon rate of 7.267% and mature on March 3, 2034. The downgrade primarily reflects our view that there could be heightened risk of coupon nonpayment of the regulatory Tier 1 capital instrument under Basel III implementation in Korea.

The positive outlook on SCBK reflects the positive outlook on our foreign-currency rating on Korea, which constrains the ratings on SCBK. We also strongly correlate the ratings on SCBK with its relatively important role within the Standard Chartered group. In our view, SCBK is a "core" subsidiary of the Standard Chartered group, whose main operating entity is Standard Chartered Bank (SCB; AA-/Negative/A-1+). SCBK accounted for about 10% of the group's capital as of December 2013. We also expect the Korean subsidiary to play a key role in Standard Chartered group's global expansion strategy.

We could upgrade SCBK if we were to raise the foreign currency sovereign ratings on Korea. However, after such a potential upgrade, the outlook on SCBK would likely be negative, reflecting the negative outlook on SCB. The negative outlook on SCB reflects our view that we may lower the rating if we consider that extraordinary support from the U.K. government has become less predictable or if we lower the group credit profile (GCP) on SCB.

We could revise the outlook back to stable if we were to revise the outlook on the foreign currency sovereign ratings on Korea back to stable. If we lower the GCP on SCB, the outlook on SCBK will reflect that on SCB, which could be either negative or stable at the time of the lowering of the GCP. The outlook on SCBK will also become negative if we change our assessment of SCBK as a core subsidiary of the group. When we assess SCBK, we will look at its long term contribution to the group and its strategic fit as two key factors.