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RAM Ratings affirms AAA/Stable/P1 ratings of Standard Chartered Malaysia and Saadiq
Published on 22 Aug 2023.
RAM Ratings has affirmed 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 Standard Chartered Malaysia’s Islamic banking subsidiary, Saadiq is deemed highly strategic to the Bank. As such, its FIRs are equated to the Bank’s.
The affirmations are premised on our belief that the Bank will continue to derive strong financial support from its ultimate parent, Standard Chartered PLC (the Group), given its strategic importance to the latter. Standard Chartered Malaysia’s ratings also reflect its strong funding and liquidity profile, healthy capitalisation and sound asset quality. Credit headwinds are anticipated to subside with improving economic conditions but we do not rule out lumpy delinquencies as the Bank serves large corporate customers and multinationals. The Bank’s common equity tier-1 capital ratio of 14.3% and loan loss coverage (with regulatory reserves) of 114% as at end-March 2023 should enable it to withstand unexpected credit losses.
Standard Chartered Malaysia’s gross impaired loan (GIL) ratio remained stable at 3.8% as at end-March 2023 (end-December 2021: 3.9%), continuing to trend above the industry’s 1.7%, partly due to a stricter classification policy in line with the Group’s. The Bank prudently classified some performing corporate accounts as impaired and tagged rescheduled and restructured retail banking loans (mostly under relief) as Stage 3 although not required to by Bank Negara Malaysia. Excluding retail banking loans that are less than three months in arrears, the Bank’s adjusted GIL ratio would stand at a better 3.3%.
In FY Dec 2022, pre-tax profit grew substantially to RM743.4 mil (FY Dec 2021: RM155.5 mil), thanks to sizeable releases of overlay provisions. The Bank’s net interest margin (NIM) also expanded to 2.2% (FY Dec 2021: 2.0%) amid rate hikes, which in turn lifted its top line. Consequently, the return on risk-weighted assets jumped to 2.4% (FY Dec 2021: 0.5%). The ratio stayed strong in 1Q FY Dec 2023 at an annualised 2.6% on the back of higher trading income and fee income. We expect lighter provisions and a broader NIM to uphold profitability this year.
Standard Chartered Malaysia’s strong funding profile is underpinned by its entrenched presence in the cash management and transaction banking space. Current and savings account balances and retail deposits constituted a respective 70% and 38% of total customer deposits as at end-March 2023 (industry: 31% and 38%).
Analytical contacts
Jeremy Noel Paul
(603) 3385 2556
jeremynp@ram.com.my
Sophia Lee
(603) 3385 2619
sophia@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 2023 by RAM Rating Services Berhad
Rating Rationale: Standard Chartered Bank Malaysia Berhad
