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StanChart first major foreign bank to consolidate all Singapore operations
STANDARD Chartered Singapore (StanChart Singapore) - which has operated in Singapore for over 150 years - is due to be the first major international bank here to fully consolidate its local business into its Singapore subsidiary.
The decision, announced on Thursday, will also mean having to set aside in Singapore more capital against banking assets soon to be held under the local subsidiary. StanChart was unable to provide estimates on the additional capital to be pumped into the unit, at this time.
It could also pave the way for StanChart Singapore to list the local operations, as it has done in Hong Kong.
The bank remains domiciled in the UK, and analysts declined to say if the bank should move this to Singapore.
StanChart, which counts Singapore's Temasek Holdings as one of its shareholders, already has significant global operations here. A StanChart spokesman told The Business Times: "We have no current plans to move our domicile from the UK."
But analysts are, for now, not forecasting external capital raising from listing the Singapore unit.
"Our rating assumes that the group will inject a large amount of capital and the subsidiary will continue to build up capital via retained earnings over the next few years," S&P analyst Michael Puli told BT.
StanChart Singapore's commercial banking, corporate and institutional banking and private banking businesses - currently operating under the Singapore branch - will be transferred to Standard Chartered Bank (Singapore) Ltd (SCBL).
This follows a milestone move in 2013, when SCBL was incorporated as a subsidiary here. Then, it just transferred its retail banking and SME businesses, as well as part of its commercial banking business, to its Singapore unit.
The decision to transfer the retail banking business here into the Singapore subsidiary in 2013 was partly a response to regulators wanting foreign banks that hold a significant amount of retail customers' funds to ringfence their business by keeping a capital buffer here.
But the move by StanChart was seen to have also raised the bank's local profile, such that StanChart would be viewed by stakeholders like customers and regulators as a local bank.
StanChart, along with Citi, HSBC and Maybank, were later in 2015 designated as "too big to fail" banks with the three Singapore lenders. Citi and HSBC have also transferred their retail business in Singapore to their local subsidiaries.
These domestic systemically important banks have to answer to more supervision from the Monetary Authority of Singapore (MAS). They also have a higher capital requirement than that of Basel III.
StanChart Singapore, which highlighted its 159 years in Singapore, said its latest move to fully consolidate its local business "reinforces its long-term commitment to this market, and highlights Singapore's importance as a strategic hub".
Judy Hsu, StanChart CEO, Singapore and Asean markets, said: "As a key gateway to other Asean markets, Singapore's strategic location has enabled us to seamlessly support clients as they expand overseas. We will continue to contribute to Singapore's growth and partner our clients to fulfill their personal goals and business ambitions."
The transfer is expected to close in the next 12 to 18 months.
S&P analysts said in a report they expect the group to keep significant gross non-performing loans (NPLs) out of the Singapore subsidiary, and inject a material amount of capital as part of the transfer. The rating agency has assigned a preliminary A/A-1 rating on SCBL, and expects a stable outlook from the unit.
S&P's Mr Puli told BT: "The region is a significant contributor to group profitability and reflects the group's focus on trade finance. These elements support our view that Singapore is 'core' to the wider group, the highest designation we give to subsidiaries."
But Moody's said it would review StanChart Singapore's ratings for a possible downgrade, saying that the transfer will subject StanChart Singapore to a higher credit risk. Moody's expects the NPL ratio of the merged bank will gradually normalise at a moderately higher level in 2019.
"The bank's loan book will become more concentrated on industries and single parties, many of which are active internationally or regionally," said the Moody's analysts in a report.
Moody's currently has an Aa3/P-1 ratings on StanChart Singapore, both as a debt issuer, as well as on its long-term and short-term deposits.
MAS said it welcomed the move by StanChart Singapore, saying the announcement signifies StanChart's long-term commitment to Singapore.