Standard Chartered SG derisking pays off as asset quality improves: analyst

Though its lending profile is less diverse than local banks, capitalization remains strong.

Standard Chartered Bank (Singapore) has improved its asset quality over the past few years, and it is now comparable to that of domestic banks, S&P Global Ratings said in its latest ratings commentary.

“Group-wide de-risking initiatives over the past few years underpinned this improvement. We now expect SCBS to maintain its asset quality ratios broadly in line with those of its peers,” the ratings agency stated.

Whilst SCB Singapore still lends predominantly in the Lion City, thus making it less diverse than major local banks, S&P notes that Singapore is one of the lowest-risk countries in the region. 

“SCBS has a well-diversified corporate portfolio across industries, products, geographies, and single names, in our view. The bank has considerably de-risked its commodity-related portfolio since 2015, with increased investment-grade exposure and shorter maturities. It is also more focused on better-quality larger clients,” S&P noted.

The ratio of bad loans should remain between 1.3% to 1.5% over the next two years, similar to domestic banks.

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SCB Singapore should also maintain strong capitalization during this period, and dividend payouts are expected to remain high.

Balancing this will be low credit growth and broadly stable profitability for the bank, S&P said.

Funding and liquidity profile should be around the industry average, but weaker than that of the major Singapore banks. 

“The bank will continue to obtain most of its funding from retail deposits, in our view. It has low exposure to short-term wholesale funding and good liquidity,” S&P noted, adding that SCB Singapore will remain “a core subsidiary” of the Standard Chartered group.