RAM Ratings reaffirms StanChart Malaysia’s AAA rating
KUCHING: RAM Ratings has reaffirmed Standard Chartered Bank Malaysia Bhd’s (StanChart Malaysia’s ) AAA/ Stable/ P1 financial institution ratings, reflecting the firm’s r expectation of ready support from its parent, Standard Chartered PLC, if required.
RAM sa id the bank’s capitalisation remains solid while its funding and liquidity position is strong. These strengths moderate its asset quality and profitability weaknesses.
“StanChart Malaysia’s gross impaired-loan (GIL) ratio stood at a high 4.6 per cent as at endJune 2017 – against the industry average of 1.6 per cent -- which was more than 80 per cent of its GILs stemmed from business enterprises and, primarily, a handful of borrowers,” it said in a statement yesterday.
“To a small extent, the ratio is skewed by the Bank’s shrinking loan base. While still elevated, Standard Chartered Malaysia’s credit- cost ratio eased to 1.2 per cent in fiscal 2016, as the bulk of its lumpy provisions had been made in fiscal 2015.
“Even though the bank’s creditcost ratio eased further to an annualised 0.2 per cent in 1H fiscal 2017 amid the absence of large provisions, we opine that some provisioning risk remains.
“Meanwhile, its adjusted GIL coverage ratio -- inclusive of regulatory reserves -- stood at a sound 106 per cent as at end- June 2017.”
The ratings agency noted that StanChart Malaysia’s pre- tax profit rebounded to RM409 million in fiscal 2016, from a low of RM42 million in fiscal 2015, thanks mainly to lower impairment charges.
Given the absence of lumpy provisions, the bank’s pre-tax profit recovered further to RM253 million in 1H of fiscal year 2017.
“Nonetheless, its profitability is still relatively weak, with an annualised return on riskweighted assets of 1.7 per cent in 1H fiscal 2017, which is attributable to its high cost-to-income ratio of above 60 per cent,” it observed.
“This, coupled with lingering provisioning risk, will keep suppres si ng the bank’s profitability. In the meantime, Standard Chartered Malaysia’s market shares and revenue have been declining while the Bank and its Islamic banking subsidiary are going through leadership changes.
“On balance, StanChart Malaysia boasts a commendable deposit franchise; currentand savings- account deposits constituted 58 per cent of its total customer deposits as at end- June 2017 – among the highest in the industry. Its liquidity coverage ratio was also comfortably above 100 per cent.
“At the same time, the bank’s common- equity tier-1 capital ratio had been further strengthened to 13.3 per cent amid profit accretion and a smaller loan base, which reduced its risk-weighted assets in 1H fiscal 2017.
“Even if loan growth were to resume, the bank’s capitalisation is expected to hold up well.”