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RAM Ratings affirms AAA/Stable/P1 ratings of Standard Chartered Malaysia and Saadiq
Published on 04 Nov 2024.
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 its Islamic banking arm, Standard Chartered Saadiq Berhad (Saadiq) whose FIRs are equated to the Bank’s.
The ratings reflect the Bank’s strong funding and liquidity profile, healthy capitalisation and sound asset quality. However, high operating costs and the normalisation of impairment charges lowered the Bank’s profitability indicators vis-à-vis peers. A rating uplift is accorded to reflect our expectation that Standard Chartered Malaysia, as a strategic entity, will continue to derive strong financial support from its ultimate parent, Standard Chartered PLC.
The Bank’s gross impaired loan ratio eased further to 3.0% as at end-March 2024 (end-December 2022: 3.6%; end-December 2021: 3.9%), thanks to the resolution of two sizeable business accounts. The ratio was still however higher than the industry’s 1.6%, partly owing to the Bank’s more stringent classification policy under which some performing corporate accounts and rescheduled and restructured retail banking loans were qualitatively classified as impaired. Adjusting for differences from industry practice, i.e., excluding retail banking loans that are less than three months in arrears, the Bank’s adjusted GIL ratio would be a healthier 2.5%.
We remain cognisant of the Bank’s vulnerability to lumpy exposures given its corporate portfolio focus. Its common equity tier-1 capital ratio of 13.1% and loan loss coverage (with regulatory reserves) of 122% as at end-March 2024 remain robust and should provide sufficient buffer against potential credit deterioration.
Standard Chartered Malaysia’s profitability lags peers’. Pre-tax profit for FY Dec 2023 declined 15% y-o-y to RM629.1 mil, translating into a return on risk-weighted assets (RoRWA) of 2.1% (FY Dec 2022: 2.4%). This was mainly attributable to heftier expenses on technology projects and group recharges, coupled with smaller impairment allowance releases. RoRWA slipped further to an annualised 1.4% in 1Q FY Dec 2024 on the back of softer fee and trading income, margin compression and the normalisation of impairment expenses.
An entrenched presence in the cash management and transaction banking space support Standard Chartered Malaysia’s solid deposit funding capabilities. Current and savings account balances and retail deposits made up a respective 70% and 38% of customer deposits as at end-March 2024 (industry: 33% 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 2024 by RAM Rating Services Berhad
Rating Rationale: Standard Chartered Bank Malaysia Berhad
