Moody’s downgrades StanChart from ‘positive’ to ‘stable’

[SINGAPORE] Credit rating agency Moody’s Ratings, on Monday (Nov 24), downgraded its credit rating of Standard Chartered PLC (SCPLC) and Standard Chartered Bank (SCB) from positive to stable, following revisions to the agency’s credit assessment methodology for banks earlier this month.

The agency said that its revised outlook for SCPLC and SCB mainly reflects the updated ratio definition and scoring calibration for the capital sub-factor in its methodology. It also captures SCPLC’s strong business and geographical diversification that benefits its credit profile.

“However, these benefits are somewhat offset by the operational, financial and legal tail risks associated with managing the group’s wide international footprint and its growing global markets business,” noted Moody’s.

An improvement in SCPLC and SCB’s credit worthiness could lead to an upgrade of long-term deposit, issuer and senior unsecured debt ratings. For example, SCPLC’s senior unsecured ratings could be upgraded if the group substantially reduces its market risk exposure, while maintaining stable profitability, said the agency.

Additionally, a decrease in the instruments’ respective loss-given-failure could also lead to an upgrade.

On the other hand, a deterioration in SCPLC and SCB’s credit worthiness, or increase in the loss-given failure of the bank’s instruments could result in a downgraded credit rating, said Moody’s.

For example, SCPLC’s senior unsecured ratings could be downgraded if the group’s problem loans ratio exceeds 3 per cent, and if its tangible common equity to risk-weighted assets ratio (TCE/RWA) declines to below 13 per cent, and if its net income to tangible assets ratio falls to below 0.4 per cent without the prospect of a swift recovery.

Moody’s added that it would also upgrade SCB’s senior unsecured rating if its TCE/RWA improves to more than 14.5 per cent and problem loans ratio goes under 2 per cent on a sustained basis.

Much lower exposure to market risk could also lead to an upgrade, it noted.

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Rating action taken on Malaysia, Thailand subsidiaries

Separately, on Tuesday, Moody’s said it took rating action on SCB’s subsidiaries in Malaysia and Thailand, similarly moving from positive to stable.

Moody’s said it would downgrade SCB Malaysia’s baseline credit assessments (BCA) if the bank’s TCE/RWA declines to below 14 per cent.

It added that it could also do so if SCB Malaysia’s “less-stable funds to tangible banking assets ratio exceeds 22 per cent; or if its core banking liquidity to tangible banking assets ratio decreases to below 23 per cent on a sustained basis and without prospects of a swift recovery”.

As for SCB Thailand, its BCA and ratings could be downgraded if its TCE/RWA falls to below 20 per cent, or if its core banking liquidity to tangible banking assets ratio declines to below 17 per cent.