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RAM Ratings reaffirms Standard Chartered Malaysia’s AAA rating

Published on 24 Dec 2019.

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RAM Ratings has reaffirmed Standard Chartered Bank Malaysia Berhad’s (the Bank) AAA/Stable/P1 financial institution ratings. The ratings incorporate our expectation that the Bank will remain strategically important to its parent, Standard Chartered PLC (the Group). Accordingly, support from the Group is envisaged to be readily available if the need arises. Additionally, the Bank’s capitalisation and funding profile have stayed strong. While we have observed marked improvement in asset quality indicators in recent years, the Bank is still vulnerable to large impairments in its corporate loan book. 

Standard Chartered Malaysia’s gross impaired loan (GIL) ratio had declined considerably to 2.7% as at end-December 2018 (end-December 2017: 4.6%) before receding to 2.3% as at end-September 2019 (industry: 1.6%). The improvement is attributable to the reclassification of a large account as performing, in addition to some recoveries and write-offs of lumpy GILs. The Bank’s credit cost ratio also fell in tandem, coming in at an annualised 19 bps in 9M fiscal 2019. At the same time, the Bank had strengthened its loan-loss buffers – GIL coverage (inclusive of regulatory reserves) stood at 144.5% as at end-September 2019. 

Owing to much lower impairment charges, Standard Chartered Malaysia’s pre-tax profit continued its path to recovery, jumping 55% y-o-y to RM743 mil in fiscal 2018 (fiscal 2017: RM480 mil). Its pre-tax profit of RM456 mil in 9M fiscal 2019 translated into an annualised return on risk-weighted assets of 2.0%, which is still deemed relatively soft. Profitability continues to be affected by high operating expenses. The Bank’s cost-to-income ratio came in at 60.8% in 9M fiscal 2019 and is expected to stay elevated in the near term.

The Bank possesses a commendable deposit franchise, underpinned by a wide base of current and savings account (CASA) and individual deposits, which made up a respective 60% and 41% of customer deposits as at end-September 2019 (industry average: 26% and 37%). Standing among the highest in the industry, this proportion of CASA deposits bears testimony to the Bank’s cash management franchise. Further, its liquidity coverage ratio and net stable funding ratio were comfortably above 100%. 

In terms of capitalisation, Standard Chartered Malaysia’s common equity tier-1 capital ratio stood at a healthy 13.8% as at end-September 2019 (end-December 2018: 12.7%). 

 

Analytical contact
Liang Huey Jean, CFA
(603) 3385 2495
jean@ram.com.my

Media contact
Padthma Subbiah
(603) 3385 2577
padthma@ram.com.my

 

The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.

RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.

Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.

Published by RAM Rating Services Berhad
© Copyright 2019 by RAM Rating Services Berhad



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