Fitch affirms Standard Chartered Bank SL branch at AAA(lka); outlook stable

Fitch Ratings Lanka has affirmed Standard Chartered Bank, Sri Lanka Branch’s (SCBSL) National Long-Term Rating at ‘AAA(lka)’. The Outlook is Stable.

KEY RATING DRIVERS

SCBSL’s rating reflects the credit profile and financial strength of Standard Chartered Bank (SCB; Long-Term Issuer Default Rating (IDR) at A+/Stable and Viability Rating at A).

The rating is linked with SCB’s IDR to reflect SCBSL’s legal status as a branch of SCB, which makes it part of the same legal entity. It also reflects the relatively small size of the branch (around 0.15% of the total assets of SCB at end-2016), and therefore any support would not be material to the head office.

SCB’s rating is higher than Sri Lanka’s Long-Term Local- and Foreign-Currency IDRs of ‘B+’/Stable’; and as a result, SCBSL’s rating is at the highest end of the National Rating scale for Sri Lanka. Fitch believes that support from SCB would be forthcoming if required, subject to any regulatory constraints on remitting money into Sri Lanka.

SCBSL’s reported non-performing loan ratio continues to remain low compared to local peers despite the increase in the ratio to 0.8% at end-June 2017 from 0.3% at end-2015.

Fitch expects the branch to maintain sufficient capitalisation to support its business plans despite regular profit repatriations. SCBSL’s Fitch Core Capital ratio improved to 21.0% at end-June 2017 from 19.9% at end-2016 supported by internal capital generation.

RATING SENSITIVITIES

A downgrade of SCBSL’s rating could result from SCB’s rating falling below Sri Lanka’s IDR, although Fitch sees that as highly unlikely in the near to medium term. Significant changes to Fitch’s expectation of support from SCB could also have a negative impact on the rating.