Moody's placed the ratings of Standard Chartered Bank (Singapore) Ltd. on review for downgrade given the potential negative impact on its risk profile as a result of its U.K.-based parent's plan to fully consolidate its business operations in Singapore.
Standard Chartered Bank said Feb. 22 that it plans to transfer most of the assets and liabilities of its Singapore branch into Standard Chartered Bank (Singapore) in the next 12 to 18 months. The proposed merger is subject to regulatory approvals.
Moody's said it will review for downgrade Standard Chartered Bank (Singapore)'s Aa3/P-1 long- and short-term deposit and issuer ratings, its "a2" baseline credit assessment and adjusted baseline credit assessment and its Aa2(cr)/P-1(cr) counterparty risk assessments. Currently, the rating agency expects the review to result in a one-notch downgrade of the bank's ratings and BCA.
Moody's said it expects post-merger Standard Chartered Bank (Singapore) to have a higher risk profile, compared to the pre-merger bank. As a result of the merger, the bank's balance sheet will almost triple in size, with the addition of corporate and institutional banking, commercial banking and private banking assets and liabilities. As a result of the additional exposures, the bank will be subject to higher credit risk, the agency noted.
While the merged bank is likely to post a moderately higher return on assets, its profitability will remain modest due to its high-cost base, Moody's said. Further, the bank is likely to have a moderately weaker funding structure due to its higher reliance on market funds.
Standard Chartered Bank is a subsidiary of Standard Chartered Plc.