KEY RATING DRIVERS
IDRS, NATIONAL RATINGS, SENIOR DEBT AND SUPPORT RATING
SCBT's IDRs are rated one notch below the Viability Rating of its parent - Standard Chartered Bank (SCB, A+/Stable/a) - based on parental support, as Fitch sees SCBT as a strategically important subsidiary. Fitch takes into account the near-full 99.87% ownership of the Thai subsidiary, SCBT's important role in supporting the group's international business, especially in the greater Mekong region, and the high level of integration of business strategies, management, funding and operations. SCBT also shares a name and logo with its parent.
However, SCBT's rating is not equalised with its parent's Viability Rating, as is the case for SCB's other subsidiaries, due to its smaller size and because we do not see Thailand as core to the group's strategy. This is similar to the approach taken for other rated foreign subsidiary banks in Thailand.
Fitch has also affirmed SCBT's Support Rating, as we believe there is an extremely high probability of extraordinary support from SCB for its subsidiary, if needed.
The Stable Outlook is consistent with the Stable Outlook on SCB's ratings.
SCBT's National Ratings and the ratings of its senior debt have been affirmed as the bank's credit profile, as reflected in the Long-Term Local-Currency IDR of 'A-', remains stronger than Thailand's sovereign Long-Term Local-Currency IDR of 'BBB+'.
VIABILITY RATING
SCBT's Viability Rating is supported by its solid capitalisation, with Fitch Core Capital of 28.2% and a common equity Tier 1 ratio of 27.5% at end-June 2017. Fitch believes the bank's high level of capital already provides ample cushion in the event of a severe downturn and expects capital ratios to increase further by end-2017 due to lower risk-weighted assets after the planned sale of domestic retail operations to a local financial group. However, the bank is unlikely to be able to sustain such capital levels indefinitely - possibly because the parent may seek to have capital returned or deploy it for other purposes, such as growth.
Fitch does not expect the planned divestiture to materially weaken SCBT's domestic franchise, as this is not the bank's core business. SCBT will focus on corporate and international banking, where it could use the group's franchise strengths.
The Viability Rating also reflects Fitch's expectation that SCBT's profitability will gradually improve over the medium-term, but is likely to remain weaker than that of domestic and similarly rated peers. Asset quality pressure should subside, given the significant reduction of loans in the bank's portfolio and the reasonable buffer provided from loan loss coverage of 123% at end-June 2017.
RATING SENSITIVITIES
IDRS, NATIONAL RATINGS, SENIOR DEBT AND SUPPORT RATING
A downgrade of SCB's Viability Rating would have a similar affect to SCBT's Long-Term Foreign- and Local-Currency IDRs. An upgrade would affect SCBT's Long-Term Local-Currency IDR, but not its Long-Term Foreign-Currency IDR, as the rating is capped by Thailand's Country Ceiling of 'A-'.
SCBT's National Ratings are already at the top-end of the scale, meaning there is no rating upside. Fitch, however, may downgrade the ratings if SCBT's Long-Term Local-Currency IDR falls below Thailand's Long-Term Local-Currency IDR of 'BBB+', but Fitch believes this is unlikely to occur over the medium term due to the one-notch differential and Stable Outlook.
A lower propensity for SCB to support SCBT, which may occur if SCBT's importance in supporting the group's business decreases or if the parent significantly reduces its shareholding, could result in a downgrade. A downgrade of Thailand's Country Ceiling could have a similar effect on SCBT's Long-Term Foreign-Currency IDR.
VIABILTIY RATING
The Viability Rating is unlikely to be upgraded over the medium term unless SCBT materially strengthens its overall credit, particularly earnings and asset-quality profile. The Viability Rating may be downgraded if SCBT's franchise is significantly eroded or in the unlikely event that capitalisation is allowed to weaken to levels similar to peers. Persistently weaker asset quality and profitability measures relative to peers could negatively affect the Viability Rating.
The rating actions are as follows:
Standard Chartered Bank (Thai) Public Company Limited
- Long-Term Foreign-Currency IDR affirmed at 'A-'; Outlook Stable
- Short-Term Foreign-Currency IDR affirmed at 'F2'
- Long-Term Local-Currency IDR affirmed at 'A-'; Outlook Stable
- Short-Term Local-Currency IDR affirmed at 'F2'
- Viability Rating affirmed at 'bbb'
- Support Rating affirmed at '1'
- National Long-Term Rating affirmed at 'AAA(tha)'; Outlook Stable
- National Short-Term Rating affirmed at 'F1+(tha)'
- National Rating on short-term unsecured and unsubordinated debenture programme affirmed at 'F1+(tha)'