RAM Ratings Lanka assigns AAA/P1 to Standard Chartered Bank

RAM Ratings Lanka has assigned respective long- and short-term financial institution ratings of AAA and P1 to Standard Chartered Bank – Sri Lanka Branch (“SCB” or “the Bank”); the long-term rating has a stable outlook. The ratings are mainly driven by the Standard Chartered Bank PLC’s (“SCP” or “the Group”) credit profile, as the Bank is a branch of the Group. The ratings also reflect the Bank’s healthy asset quality, commendable performance, and franchise.

SCB, starting operations in 1892 as a branch of the Chartered Bank of India, Australia and China (founded in 1853), is currently the second-largest foreign bank in the Sri Lankan banking industry. The Bank is a now part of SCP, which had been incorporated in the United Kingdom following the merger of the Chartered Bank of India, Australia and China and The Standard Bank of British South Africa (founded in 1863) in 1969. The Group has almost 1,700 offices in 70 markets.

However, SCP’s focus has been on the Asian and African markets, which accounted for 74.46% of its operating income in FYE 31 December 2009 (“FY Dec 2009”). The Group’s pre-tax profit ascended 12.76% to USD 5.15 billion last year, despite the global economic turmoil. SCP’s asset base remained relatively unchanged at USD 436.65 billion as at end-FY Dec 2009 (end-FY Dec 2008: USD 435.07 billion). At the same time, the Group posted a tier-1 risk-weighted capitaladequacy ratio (“RWCAR”) of 11.5% and an overall RWCAR of 16.5% (end-FY Dec 2010: 9.9% and 15.6%).

SCB’s asset base of LKR 83.76 billion as at end-FY Dec 2009 constituted less than 1% of the Group’s assets. SCP’s commitment to the Bank has been clearly demonstrated, having injected LKR 2.53 billion into SCB in 2005 to meet capital requirements, followed by another USD 107 million in June 2010 to take-over As at end-FY Dec 2009, SCB’s tier-1 RWCAR and overall RWCAR only came up to 5.79% and 6.38%, respectively, as the losses arising from its provisioning had eroded its capital.

However, these ratios had bounced back to 11.23% and 11.62% by end-June 2010, following the reversal of provisions after the past due derivative receivables had been transferred to SCP.