ECONOMYNEXT – Fitch Ratings has confirmed an ‘AAA(lka)’ rating with a stable outlook given to the Sri Lanka branch of Standard Chartered Bank.

“The affirmation reflects Fitch’s expectation of extremely high probability of support from parent
Standard Chartered Bank (SCB: A+/Stable/a), if required, subject to any regulatory constraints on
remitting money into Sri Lanka,” the rating agency said.

“Our assessment captures SCBSL’s status of being a branch of SCB and as such forms part of the same legal entity.

“The relatively small size of the branch (it accounted for 0.1% of SCB’s total assets at end-2018)
implies that support, if needed, would not be material to the head office.

“We expect SCBSL to maintain high capital ratios to support its business plans. Its Fitch Core Capital ratio of 17.5% at end-June 2019 was higher than that of most local peers. SCBSL’s non-performing loan ratio of 2.1% at end-June 2019 remained better than the industry’s 4.8%, underpinned by its large exposure to top-tier corporate clients.”

The full statement is reproduced below:

Fitch Affirms Standard Chartered Bank, Sri Lanka Branch at ‘AAA(lka)’; Outlook Stable

Fitch Ratings-Colombo-04 October 2019:

Fitch Ratings Lanka has affirmed Standard Chartered Bank, Sri Lanka Branch’s (SCBSL) National Long-Term Rating at ‘AAA(lka)’. The Outlook is Stable.

‘AAA(lka)’ National Long-Term Ratings denote the highest ratings assigned by Fitch on its national rating scale for that country. This rating is assigned to issuers or obligations with the lowest expectation of default risk relative to all other issuers or obligations in the same country.

Key Rating Drivers

The affirmation reflects Fitch’s expectation of extremely high probability of support from parent Standard Chartered Bank (SCB: A+/Stable/a), if required, subject to any regulatory constraints on remitting money into Sri Lanka. Our assessment captures SCBSL’s status of being a branch of SCB and as such forms part of the same legal entity.

SCB’s Issuer Default Rating (IDR) is higher than Sri Lanka’s Long-Term Local- and Foreign-Currency IDRs of ‘B’ and as a result, SCBSL’s rating is at the highest end of the National Rating scale for Sri Lanka.

The relatively small size of the branch (it accounted for 0.1% of SCB’s total assets at end-2018) implies that support, if needed, would not be material to the head office. The extremely high probability of support is underpinned by the alignment of SCBSL’s strategic objectives and strong operational integration with SCB group.

We expect SCBSL to maintain high capital ratios to support its business plans. Its Fitch Core Capital ratio of 17.5% at end-June 2019 was higher than that of most local peers. SCBSL’s non-performing loan ratio of 2.1% at end-June 2019 remained better than the industry’s 4.8%, underpinned by its large exposure to top-tier corporate clients.

RATING SENSITIVITIES

A downgrade of SCBSL’s rating could result from SCB’s rating falling below Sri Lanka’s IDR, although Fitch sees that as highly unlikely in the near to medium term due to the gap between the ratings. Significant changes to Fitch’s expectation of support from SCB could also have a negative impact on the rating.

There is no rating upside for the National Long-Term Rating as it is already at the highest point on the scale.

Standard Chartered Bank, Sri Lanka Branch; National Long Term Rating; Affirmed; AAA(lka); RO:Sta