Fitch affirms Standard Chartered Bank, Sri Lanka branch at ‘AAA’

Tuesday, 7 October 2014 01:55 -     - {{hitsCtrl.values.hits}}

Fitch Ratings Lanka has affirmed Standard Chartered Bank, Sri Lanka Branch’s (SCBSL) National Long-Term Rating at ‘AAA(lka)’. The Outlook is Stable. SCBSL’s rating is at the highest end of the National Rating scale and reflects the credit profile and financial strength of Standard Chartered Bank (SCB; AA-/Negative). SCB’s rating is higher than Sri Lanka’s Long-Term Local and Foreign Currency Issuer Default Ratings of ‘BB-’/Stable, and as a result, SCBSL’s rating on the National Rating scale is mapped to ‘AAA(lka)’. The rating is linked to SCB’s IDR because of SCBSL’s legal status as a branch of SCB, making it a part of the same legal entity. Fitch believes that support from SCB would be forthcoming if required, subject to any regulatory constraints on remitting money into Sri Lanka. SCBSL’s loan book contracted 1.4% in 1H14 and 9.6% in 2013, in line with the trend seen across the sector, amidst low private-sector credit growth. Top-tier local corporates account for a large part of SCBSL’s loan portfolio, and Fitch expects this to continue. At end-2013, corporates accounted for 73% of the total loan book. SCBSL’s reported gross non-performing loan ratio stood at 0.69% at end-1H14, compared with 0.49% at end-2013. SCBSL funds its operations largely through deposits, although the branch has access to intergroup funding if needed. SCBSL’s Fitch core capital ratio remained high at 26.7% at end-1H14 (2013: 25.8%) following the repatriation of Rs. 1 b of profit in 1H14 to SCB. The branch is the second largest among the Fitch-rated foreign bank branches in Sri Lanka, with an asset base of Rs. 130 b at end-1H14. It accounted for 1.9% of total banking sector assets at end-2013. 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.