StanChart Sri Lanka unit sent Rs5.5bn profit in 2014, retains ‘AAA(lka)’ rating

ECONOMYNEXT – Standard Chartered Bank, Sri Lanka Branch (SCBSL), repatriated 5.5 billion rupees of profit in 2014 to its head office, according to Fitch Ratings Lanka, which said the unit retained the National Long-Term Rating of ‘AAA(lka)’ with a stable outlook.

SCBSL’s loan book contracted 8 percent in the first quarter of 2015 due to lack of credit growth mainly on the corporate segment, similar to those recorded by other Fitch-rated foreign bank branches operating in Sri Lanka.

The branch is the second-largest among the Fitch-rated foreign bank branches in Sri Lanka, with an asset base of 128 billion rupees at end-1Q15, accounting for 1.8 percent of total banking sector assets.

Fitch said in a statement the branch continues to provide working capital financing to its top-tier corporate clients while building its retail book, which accounted for 28 percent of the total loan book at end-2014 compared with 236 percent at end-2013.

“Fitch expects SCBSL to maintain steady asset quality relative to its peers given its exposure to top-tier clients,” it said.

SCBSL’s reported gross non-performing loan ratio stood at 0.46 percent at end-1Q15, compared with 0.33 percent at end-2014.

SCBSL funds its operations largely through deposits (96 percent of total funding at end-1Q15), although the branch has access to intergroup funding, if needed.

“SCBSL’s Fitch Core Capital ratio remained high at 25.6 percent at end-1Q15 (end-2014: 24.2%) despite the repatriation of 5.5 billion rupees of profit in 2014 to its head office. The previous profit repatriation that took place in 2012 amounted to 1.6 billion rupees,” Fitch said.

Fitch said 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’s rating is higher than Sri Lanka’s Long-Term Local and Foreign Currency Issuer Default Ratings of ‘BB-‘, and as a result, SCBSL’s rating on the National Rating scale is mapped to ‘AAA(lka)’.”

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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 said it believes that support from SCB would be forthcoming if required, subject to any regulatory constraints on remitting money into Sri Lanka.

“A downgrade of SCBSL’s rating could result if SCB’s rating were to fall below Sri Lanka’s IDRs,” the rating agency said.

“Any changes to Fitch’s expectations of parental support could be negative for the rating.”  (Colombo/August 24 2015)
 

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