Published on 12 Jan 2021.
RAM Ratings has reaffirmed the AAA/Stable/P1 financial institution ratings of Standard Chartered Bank Malaysia Berhad (Standard Chartered Malaysia or the Bank) and Standard Chartered Saadiq Berhad (Saadiq). Saadiq is the wholly owned Islamic banking subsidiary of Standard Chartered Malaysia. The ratings are underpinned by our belief that extraordinary support from Standard Chartered PLC – the banks’ ultimate parent – will be forthcoming if required given their strategic importance to the latter. While Standard Chartered Malaysia’s asset quality remains weaker than similarly rated peers’, its sound loss absorption buffers are expected to sufficiently cushion against escalating headwinds from the coronavirus pandemic.
The Bank’s loan quality indicators have slipped in recent quarters due to the impairment of several large corporate accounts, although the borrowers were still prompt-paying. Its gross impaired loan ratio was elevated at 3.3% as at end-September 2020 (end-December 2019: 2.3%; industry: 1.4%). Amid rising uncertainties, the Bank had substantially increased pre-emptive provisioning in 9M FY Dec 2020. Its annualised credit cost ratio rose to 185 bps (FY Dec 2019: 35 bps) while loan loss coverage – with regulatory reserves – clocked in at 109% as at end-September 2020.
As a result of heftier credit charges and tighter margins following successive OPR cuts last year, Standard Chartered Malaysia’s pre-tax profit was 75% lower y-o-y at RM114.7 mil in 9M FY Dec 2020. Correspondingly, its annualised return on risk-weighted assets plunged to just 0.5% (three-year average: 1.9%).
Nonetheless, the Bank’s funding and liquidity profile has stayed solid. Thanks to its strong cash management franchise, Standard Chartered Malaysia enjoys sizeable shares of current and savings account deposits and individual deposits. These constituted more than 60% and around 40% of aggregate deposits, respectively, as at end-September 2020 – amongst the highest proportions in the banking industry. The Bank’s capitalisation is also deemed healthy, its common equity tier-1 capital ratio standing at 13.5% as at the same date.
Chow Kah Mun
(603) 3385 2501
(603) 3385 2577
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Rating Rationale: Standard Chartered Bank Malaysia Berhad
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