Stanchart Sri Lanka affirmed at ‘Aaa(lka)’ with Stable outlook

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

SCBSL’S rating is underpinned by Fitch’s expectation of a high probability of support from the head office of Standard Chartered Bank (SCB, A+/negative/a), if required, subject to any regulatory constraints on remitting money into Sri Lanka.

This expectation is driven by SCBSL’S status as a branch of SCB, thereby a part of the same legal entity. SCB’S Long-term Issuer Default Rating (IDR) is significantly higher than Sri Lanka’s Long-term Localand Foreign-currency IDRS of ‘CCC’, and the support-driven credit profile of the branch is among the strongest in the universe of Sri Lanka’s rated entities. As a result, SCBSL’S rating is at the highest end of the National Rating scale for Sri Lanka.

“Our assessment of support captures the alignment of SCBSL’S strategic objectives and its strong operational integration with SCB group. The small size of the branch, which accounts for around 0.1 percent of SCB’S total assets, implies that support, if needed, would not be material to the head office,” Fitch noted.

The rating agency expects SCBSL’S financial profile to remain better than local peers in the medium term, reflecting the bank’s healthy underwriting standards and risk controls, which are in line with SCB group practices.

SCBSL’S non-performing loans ratio increased to 2.7 percent by end-3q20 (end2019: 2.2 percent), driven mostly by retail loans, but remained better than the sector’s 5.3 percent.

Furthermore, SCBSL’S common equity Tier 1 (CET1) ratio of 16.8 percent at end-3q20 was higher than the sector’s 13 percent.

“We also believe that SCBSL’S funding and liquidity profile will remain steady in the medium term, underpinned by a healthy share of customer deposits and the availability of inter-group funding,” Fitch said.