Fitch affirms Standard Chartered Bank, Sri Lanka at ‘AAA(lka)’; Outlook Stable

Fitch Ratings Lanka has affirmed Standard Chartered Bank, Sri Lanka’s National Long-Term Rating at ‘AAA(lka)’. The Outlook is Stable. The rating is underpinned by Fitch’s expectation of a high probability of support from the head office of Standard Chartered Bank (SCB, A+/Stable/a), if required, subject to any regulatory constraints on remittances into Sri Lanka. 

“This expectation is driven by SCBSL’s status as a branch of SCB, and therefore a part of the same legal entity,” the rating agency said.
SCB’s Long-Term Issuer Default Rating (IDR) is significantly higher than Sri Lanka’s Long-Term Local-Currency IDR of ‘CCC-’, and the branch’s support-driven credit profile is among the strongest of the Fitch-rated domestic entities. This results in SCBSL’s rating being at the highest end of Sri Lanka’s National Rating scale.

According to Fitch, the high probability of support is underpinned by the alignment of SCBSL’s and the group’s strategic objectives and their strong operational integration. SCBSL’s small size, at only about 0.1 percent of SCB’s total assets, implies that support, if needed, would not be a burden to the head office.
Fitch said it expects capital buffers to remain robust despite a potential resumption in profit repatriation from 2024, as seen among peers, and the growth in risk-weighted assets as the 
loan book expands.

“We believe SCBSL will continue to focus on liquidity preservation until the completion of Sri Lanka’s external debt restructuring exercise and pursue loan growth thereafter, in line with its conservative risk appetite,” Fitch said.
The branch deposits excess foreign-currency liquidity at SCB’s other foreign branches and Sri Lankan rupee liquidity is maintained with the Central Bank of Sri Lanka and other domestic banks. Loans comprised only 20 percent of assets while other liquid placements accounted for 78 percent at end-3Q23, which covered all of its deposit obligations. Further, Fitch said it expects profitability to moderate in the medium term because of lower net interest margins and trading gains owing to a stabilisation in market conditions and lower interest rates.