Fitch affirms Standard Chartered Bank Sri Lanka at ‘AAA’/Stable

Thursday, 24 October 2013 00:47 - - {{hitsCtrl.values.hits}}

Fitch Ratings said yesterday it has affirmed the Standard Chartered Bank, Sri Lanka branch (SCBSL) National Long-Term Rating at ‘AAA(lka)’. The Outlook is Stable. The rating action follows the affirmation of Standard Chartered Bank’s (SCB) Long-Term Issuer Default Rating (IDR) at ‘AA-’ with Stable Outlook on 23 October 2013 Key rating drivers SCBSL’s rating is at the highest end of the National Rating scale and reflects the credit profile and financial strength of the head office SCB. The rating is tied to SCB’s IDR because of SCBSL’s legal status as a branch of SCB and because both are part of the same legal entity. SCB’s rating is higher than Sri Lanka’s Long-Term Local and Foreign Currency IDRs of ‘BB-’/Stable, and as a result, SCBSL’s rating on the National Rating scale is mapped to ‘AAA(lka)’. SCBSL’s appeal against the fine of Rs. 27 billion imposed by the Exchange Control Department for alleged violation of exchange control laws was annulled in H113. Fitch expects SCBSL’s lending to remain focused on its existing customer base. SCBSL’s loan book contracted 7% in H113 after expanding 18% in 2012, reflecting the drop in lending seen across the banking sector. Consequently, loans decreased to 43.5% of assets from 55.8%. Fitch believes that SCBSL’s strong asset quality is likely to continue to be supported by its concentration in corporate lending, mainly to top-tier local corporates. Corporate loans accounted for 73% of its total loans at end-2012. Non-performing loans (including interest in suspense) remained at under 1% of loans at H113, even though there was an increase in NPLs from consumer lending, including credit card advances, which account for 6% of loans. SCBSL’s Fitch Core Capital ratio (FCC) remained high at 21.6% in H113 (2012:19.5%), similar to other foreign bank branches. Profitability, measured as a ratio of pre-impairment operating profit to average total assets, decreased to 5.8% in H113 from 6.4% in 2012, largely because of a contraction in net interest margin. Profitability nonetheless remained healthy compared with local peers. Rating sensitivities A downgrade of SCBSL’s rating could result if SCB’s rating were to fall below Sri Lanka’s IDRs. Any changes to Fitch’s expectations of parental support could be negative for the rating. SCB has had operations in Sri Lanka since 1892, and SCBSL is the country’s second-largest foreign bank branch.