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.
RATINGS RATIONALE
SCBHK
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
SCBM's A3 foreign currency deposit rating incorporates the bank's BCA ofBaa1; Moody's assessment that there is a very high probability that itsparent, SCB, would provide support; and a high probability of systemicsupport. However, because SCBM's deposit rating is already constrained by
the A3 ceiling for foreign currency deposits in Malaysia, the change inthe ratings of its parent does not lift SCBM's deposit rating any higher.
SCBT
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 supportfrom its parent, SCB; and a high probability of systemic support.However, because the rating of SCBT already benefits from high systemicsupport in Thailand, the upgrade of the parent is not sufficient, underMoody's Joint Default Analysis methodology, to result in a similarupgrade in SCBT's A3 deposit rating.
SCFB
SCFB's debt and deposit ratings, which benefit from high parentalsupport, were upgraded to A1, reflecting the enhanced capacity for SCBto provide support to SCFB, given SCB's stronger stand-alone financialhealth 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 -- isunderpinned by the positive trajectory of SCFB's performance in franchise
and financial fundamentals under its parent, which acquired the formerKorea First Bank in 2005.
Moody's also considered the substantial benefits that SCFB receives frombeing part of the Standard Chartered group, including a global brandname, formidable franchise, vast resources, strong capital and managementskills. 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 loanto deposit ratio was 95.2%.
Importantly, in determining SCFB's BFSR, Moody's also assessed the bank'scapital after incorporating expected losses in its risk assets usingscenario analysis. This approach is consistent with Calibrating BankRatings in the Context of the Global Financial Crisis published inFebruary 2009 and the assumptions in Moody's Approach to EstimatingKorean Bank Credit Losses published in September 2009.
Under Moody's worst-case scenario analysis, SCFB remained economicallysolvent; and its capital was at similar levels to those of banks in thehigher C-/Baa2 rating band.
Asset quality is not a credit issue for SCFB. The bank's non-performingloan ratio was 1.15% at end-2009 versus the system ratio of 1.22%. Inaddition, loan growth for the past four years has been pedestrian sothere is less threat of credit problems emerging as the loan bookseasons. Furthermore, SCFB's loan book comprises a substantial 54% ofrelatively lower-risk mortgage loans.
Although its earnings trend is not well established, SCFB's coreprofitability has improved. However, the result is slightly lower thanthe profitability ratios of other higher rated Korean banks. Efficiencyhas also improved with the cost income ratio in the low 50% range.
In terms of strategy, SCFB has successfully achieved a more balancedrevenue mix between its wholesale and consumer banking operations. Thisstrategy is consistent with the SCB group's global strategy.
A risk, in Moody's opinion, is SCFB's management of its significantderivatives balances. As part of SCFB's plans to develop its wholesalebanking business, it has become a relatively large derivatives player inthe Korean market. Consequently, the proportion of derivatives in thebalance sheet based on Korean IFRS was 12% at end-2009 although this wasas high as 22% at end-2008.
PREVIOUS RATING ACTIONS & PRINCIPAL METHODOLOGIES
The last rating action on SCBHK was taken on February 10, 2010 when thejunior subordinated debt rating was downgraded to A2 from A1 followingthe methodology revision for hybrid securities.
The last rating action on SCBM was taken on July 20, 2009 when Moody'sconcluded the review of the deposit and debt ratings of nine Malaysianbanks initiated on May 20, 2009 to examine the systemic supportassumption used in Moody's Joint-Default Analysis application.
The last rating action on SCBT was taken on October 28, 2010 when theoutlooks on SCBT's foreign currency long-term deposit rating of Baa1 andissuer rating of A3 were revised to stable from negative, following thesovereign outlook change.
The last rating action on SCFB was on February 11, 2010, when its juniorsubordinated debt (Upper Tier 2) rating under its MTN programme wasdowngraded to Baa1 from A3. The instrument was rated two notches belowthe bank's Bank Debt Rating to reflect its lower status in liquidation,ranking senior to Hybrid Tier 1 Notes and common equity and junior toLower Tier II subordinated debt. The revised rating carried a stableoutlook.
The principal methodologies used in these ratings were Bank FinancialStrength Ratings: Global Methodology published in February 2007, andIncorporation of Joint-Default Analysis into Moody's Bank Ratings: ARefined Methodology published in March 2007.
SCBHK, headquartered in Hong Kong, had assets of HKD690 billion (USD88.9billion) 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 THB249,931million (USD8,401 million) as of June 2010.SCFB, headquartered in Seoul, had assets of KRW68 trillion (USD59billion) 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-currencysubordinated 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-termdeposit 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-termdeposit of Baa1/P-2; GLC deposit of A3/P-1; foreign-currency issuer ofA3/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 currencysenior/subordinated debt to A1/A2 from A2/A3; and BFSR to C-, which mapsto a BCA of Baa2 from D+, which mapped to Baa3. The foreign currencyshort-term debt and deposit rating of Prime-1 was unaffected andcontinues to carry a stable outlook.
REGULATORY DISCLOSURES
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 maintaininga credit rating.
Moody's adopts all necessary measures so that the information it uses inassigning a credit rating is of sufficient quality and from sourcesMoody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's is not an auditor andcannot in every instance independently verify or validate informationreceived in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com for thelast rating action and the rating history.The date on which some Credit Ratings were first released goes back to atime before Moody's Investors Service's Credit Ratings were fullydigitized and accurate data may not be available. Consequently, Moody'sInvestors Service provides a date that it believes is the most reliableand accurate based on the information that is available to it. Pleasesee the ratings disclosure page on our website www.moodys.com for furtherinformation.
Please see the Credit Policy page on Moodys.com for the methodologiesused in determining ratings, further information on the meaning of eachrating category and the definition of default and recovery.
Singapore
Beatrice Woo
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service Singapore Pte. Ltd.
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Stephen Long
MD - Financial Institutions
Financial Institutions Group
Moody's Investors Service Hong Kong Ltd.
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