Published on 16 Aug 2022.
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 is viewed as highly strategic to Standard Chartered Malaysia, given its status as the latter’s Islamic banking subsidiary, its FIRs are equated to the Bank’s.
The reaffirmations incorporate our belief that the Bank will continue to derive strong financial support from its ultimate parent, Standard Chartered PLC, in view of its strategic importance to the latter. Standard Chartered Malaysia’s ratings also consider its strong funding and liquidity position and the Bank’s sufficient loss absorption buffers in terms of gross impaired loan (GIL) coverage and capitalisation. While the downside risk on its asset quality profile has eased, it remains susceptible to lumpy delinquencies as it serves mainly large corporate customers and multinationals.
Standard Chartered Malaysia’s GIL ratio of 4% as at end-March 2022 (end-2020: 4.5%) was higher than the industry’s 1.6% owing to past credit stresses contributed by lumpy GILs. The elevated ratio was also due to the qualitative impairment of some corporate borrowers and rescheduled and restructured retail banking loans (including relief loans). This is in line with the standard group-wide credit policy. Repayments of some corporate accounts are still prompt. The share of relief financing (including rescheduled and restructured loans due to Covid-19) is currently less than 2%. Excluding retail banking exposures less than 90 days overdue, the Bank’s adjusted GIL ratio would be 3.0%. A common equity tier-1 capital ratio of 13.1% and GIL coverage (with regulatory reserves) of 114% as at end-March 2022 will provide the Bank sufficient loss absorption capacity should impairments creep up.
Profit before tax rebounded to RM155.5 mil in FY Dec 2021 (FY Dec 2020: -RM75.8 mil), improving further in 1Q FY Dec 2022. Earnings were 21% higher y-o-y at RM228.6 mil, upheld by reduced credit costs and releases of overlay provisions. Standard Chartered Malaysia’s overall earnings profile is still seen as modest with a three-year average return on risk-weighted assets of 0.7%, hampered by historically hefty provisions and an elevated cost to income ratio (three-year average: 67%; average of eight banking groups: 45% in 2021). Lighter provisions and a broader net interest margin amid rate hikes will lift profitability this year while Cukai Makmur (prosperity tax) will weigh on net income to some extent.
Standard Chartered Malaysia’s funding profile is solid by virtue of its strong depositor franchise. The Bank has a large pool of current and savings account balances and retail deposits, making up a respective 73% and 39% of total customer funding as at end-March 2022 (industry: 33% and 37%). This is a testament of its entrenched presence in the cash management and transaction banking space.
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