Published on 04 Oct 2021.
RAM Ratings has reaffirmed the AAA/Stable/P1 financial institution ratings (FIRs) of Standard Chartered Bank Malaysia Berhad (Standard Chartered Malaysia or the Bank) and Standard Chartered Saadiq Berhad (Saadiq). As Saadiq, the wholly owned Islamic banking subsidiary of Standard Chartered Malaysia, is viewed to be highly strategic to the Bank, its FIRs are equated to the Bank’s.
The reaffirmations reflect our expectation of ready financial support from Standard Chartered PLC (the Group), the Bank’s ultimate parent, if required, on account of the latter’s strategic importance to the Group. Standard Chartered Malaysia’s ratings also consider its healthy capitalisation as well as strong funding and liquidity profile, although the Bank’s weakened asset quality and profitability metrics may stay under pressure amid the prolonged health crisis.
The Bank’s gross impaired loan (GIL) ratio escalated to 5.3% as at end-June 2021 (end-2019: 2.6%), partly owing to its prudent classification of impaired loans. The spike mostly stemmed from the qualitative impairment of three large corporate loans and rescheduled and restructured (R&R) retail loans to a smaller extent. Excluding retail loans prudently tagged as impaired due to ongoing relief measures and other differences from industry practice, the Bank’s adjusted GIL ratio would stand at 4.0% (industry: 1.6%). Standard Chartered Malaysia’s loan loss coverage ratio (with regulatory reserves) dropped to 82% as at end-June 2021 (end-2019: 149%), despite a loftier credit cost of 241 bps (or RM685.7 mil; 2019: 25 bps).
In view of its inherent susceptibility to large corporate impairments, the Bank’s weaker asset quality could remain challenged by the pandemic. Roughly 13% of total lending was placed under relief or R&R status as at end-August 2021, much lower than the industry average of 26% (average of eight selected banking groups’ domestic loans under relief as at end-July to mid-August 2021).
Heavier impairment provisions in FY Dec 2020 caused the Bank to post a pre-tax loss of RM75.8 mil. However, subsequent quarters saw provisioning releases following some improvement in the repayment capability of borrowers. We expect near-term profitability stresses to persist amid prevailing credit uncertainties, with elevated provisions weighing on the Bank’s earnings this year.
Healthy capital levels, evinced by a common equity tier-1 capital ratio of 13.0%, afford the Bank sufficient headroom to withstand possible credit strains. Standard Chartered Malaysia’s solid deposit funding capabilities are upheld by expansive shares of current and savings account (CASA) balances and retail deposits. These made up a respective 70% and 40% of total deposits as at end-June 2021 (industry: 32% and 38%, respectively). The vast CASA deposits base is reflective of the Bank’s entrenched presence in the cash management and transaction banking space, given its ability to leverage on its parent’s global network and expertise.
Chow Kah Mun
(603) 3385 2501
(603) 3385 2619
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Rating Rationale: Standard Chartered Bank Malaysia Berhad
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Ratings on Standard Chartered Bank Malaysia Berhad