Fitch Ratings has affirmed Standard Chartered Bank (Thai) Public Company Limited (SCBT) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at 'A-'. The Outlooks are Stable. Fitch has also affirmed the bank's National Long-Term Rating at 'AAA(tha)' with a Stable Outlook.
A full list of rating actions is below.
KEY RATING DRIVERS
Parental Support Drives Ratings: SCBT's IDRs and National Ratings are underpinned by its Shareholder Support Rating (SSR), which is based on Fitch's belief that there is a very high probability that its Singapore-based parent, Standard Chartered Bank (Singapore) Limited (SCBS, A+/Stable/a), would provide extraordinary support to the Thai subsidiary, if needed. The Stable Outlook is consistent with the Outlook on SCBS's Long-Term IDR.
The bank's Short-Term Foreign- and Local-Currency IDRs are at the higher option of 'F1', to reflect that parental support propensity is more certain in the near term.
Anchor is Parent's VR: SCBT's IDRs are notched from SCBS's Viability Rating (VR) and not the parent's Long-Term IDR, given uncertainty on whether SCBT would benefit from the group's qualifying junior debt buffer that raises the parent's Long-Term IDR above its VR.
National Ratings Reflect Relativities: SCBT's National Ratings also incorporate the company's support-driven credit profile relative to other entities in the Thai national-rating universe. We believe the bank's rating of 'AAA(tha)' reflects the lowest level of default risk compared with other rated issuers on the Thai national scale based on the parent's strong ability and propensity to provide support.
Strategically Important Role: SCBT's Long-Term IDRs are rated one notch below parent's VR based on the Thai subsidiary's important role in supporting the group's international network in Thailand (BBB+/Stable) and neighbouring countries, a key part of the group's ASEAN strategy. However, we do not regard SCBT as a core subsidiary because it operates in a non-core market of the group. Furthermore, SCBT's ability to receive support from SCBS could be constrained by transfer and convertibility risks as indicated by Thailand's Country Ceiling at 'A-'.
Strong Synergies and High Integration: The ratings also take into consideration SCBS's near-full ownership of SCBT, strong linkages and close control, including the appointment of key board members and top management. In addition, the common name and branding as well as SCBT's long association with the group mean that there would be huge reputational risks to the group if SCBT were to fail.
SCBT's strategy and risk management framework are well-aligned with that of the parent. We believe the linkages and ordinary support in terms of business referrals, operational integration, expertise and infrastructure sharing with the group would continue in the medium term.
No VR Assigned: We do not assign a VR to SCBT as it does not have a meaningful standalone franchise. The bank's business model emphasizes the corporate and institutional banking business, which is based on group linkages and expertise. There is also a very high level of SCBT dependence on the group's processes and systems.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
IDRs, SSR and National Ratings
SCBT's IDRs and SSR are sensitive to changes in SCBS's propensity and ability to support SCBT.
A weakening in SCBS's ability to support SCBT (as indicated by a downgrade in the parent's VR) would lead to the downgrade of SCBT's SSR and Long-Term IDRs, assuming no change in support propensity.
Any material weakening in support propensity would also lead to the downgrade of these ratings. For example, this could happen if SCBS were to reduce its shareholding to below 75%, combined with a decline in integration in terms of the level of management control, business linkages and operational support. However, we do not expect such significant changes in support propensity to occur in the near to medium term.
A downgrade of Thailand's Country Ceiling of 'A-' may result in a downgrade of SCBT's Long-Term Foreign-Currency IDR and SSR, but would have no impact on the bank's Long-Term Local-Currency IDR.
There would be downside to SCBT's Short-Term IDRs if the bank's Long-Term IDRs were to be downgraded to 'BBB' or lower.
SCBT's National Long-Term Rating may be downgraded if its Long-Term Local-Currency IDR is downgraded below Thailand's sovereign rating of 'BBB+' while also taking into account relativities within Thailand's national-rating universe.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
IDRs, SSR and National Ratings
There will be no upside to SCBT's Long-Term Foreign-Currency IDR and the SSR, unless there is a positive change to Thailand's Country Ceiling of 'A-', which caps these ratings, and there is increased support propensity driven by material strengthening of SCBT's role in group.
We may upgrade SCBT's Long-Term Local-Currency IDR in the event of an upgrade in SCBS's VR, or if we view that the propensity of the parent to provide support has increased. An upgrade of the Long-Term Local-Currency IDR could also have a similar effect on its Short-Term Local-Currency IDR.
SCBT's National Long- and Short-Term Ratings are already at top-end of their scales. Hence, there is no rating upside.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
SCBT's ratings are linked to the VR of SCBS.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
Additional information is available on www.fitchratings.com