ICRA Nepal assigns AAA rating to Standard Chartered Bank; Rating indicates lowest credit risk

ICRA Nepal has assigned an issuer rating of [ICRANP-IR] AAA (pronounced ICRA NP issuer rating triple A) to Standard Chartered Bank Nepal Limited (SCBNL). The rating is considered to have the highest degree of safety regarding timely servicing of financial obligations. Such issuers carry the lowest credit risk. The issuer rating is only an opinion on the general creditworthiness of the rated entity and not specific to a particular debt instrument. SCB is the first bank to achieve AAA rating in Nepal.

Some of the factors leading to the rating are:

• Strong parentage (70% subsidiary of Standard Chartered Group) along with the existence of a technical services agreement (TSA) with SCB-UK. This ensures strong parental support, the Group’s oversight and deployment of best practices in SCBNL’s operations.
• Healthy deposit profile with high share of low-cost current and savings accounts (CASA, at ~55% in mid-July 2019 compared to ~43% for industry). This reflects the lowest cost of funds among private sector players (4.17% for FY2019, 6.48% for industry) and hence remains its key competitive strength.
• Strong risk management practices and underwriting controls, resulting in superior asset quality indicators with low nonperforming loans (NPLs) of 0.15% as of mid-July 2019 (0+ dpd of ~1.5%).
• Established track record (since 1987) and healthy capitalisation profile (Capital to risk weighted assets ratio - CRAR of ~20% as of mid-July 2019) also support the rating action.
• Healthy profitability indicators with the return on assets (RoA) and a return on net worth (RoNW) of 2.83% and ~17% for FY2019. This remains primarily supported by healthy net interest margins (NIMs) and strong fee-based income among its peers, along with low credit costs. Though the recent changes in regulatory interest spread norms could impact profitability to an extent, the bank’s incremental growth plans could provide some support.
• Experienced senior management team, adequate capitalisation and its strong digitisation agendas remain positives for growth over the medium term, despite limited franchise (12 branches). ICRA Nepal notes that the bank’s deposit and credit concentration remain high (~35% and ~30% among top 20 customers as on mid-July 2019).
• Bank’s overall credit portfolio mix remains diversified with ~55% retail/SME loans, whose share has further increased in the recent periods and hence remains a positive. Going forward, the bank’s ability to grow its portfolio judiciously, amid current liquidity constraints in the industry, while maintaining its deposits, asset quality and overall financial profile would remain the key rating drivers.

Bank Profile

Standard Chartered Bank Nepal Limited (SCBNL) is the second foreign joint venture in the Nepalese financial sector. The bank was incorporated in January 1987 as Nepal Grindlays Bank and was subsequently renamed SCBNL in July 2001, following the acquisition of parent ANZ Grindlays Bank by Standard Chartered Bank. SCBNL is a subsidiary of one of the largest international banking brands which has diversified its presence across the globe. The ultimate parent i.e. Standard Chartered PLC (SCPLC), United Kingdom, holds a 70% stake in the bank while the rest is held by the general public. The bank has a TSA with SCB-UK, the latter thus providing management support to the bank through an expatriate CEO along with support in other management functions. The shares of the bank are listed on the Nepal Stock Exchange. The registered and corporate office of the bank is at New Baneshwor, Kathmandu.

SCBNL has its presence across the country through its 12 branches, three extension counters and 21 ATMs as of mid-July 2019. It has a market share of 2.63% in terms of its deposit base and 2.25% of total advances of commercial banking industry as on mid-July 2019. SCBNL reported a profit after tax of NPR 2,495 million for FY2019 (~14% YoY growth) over an asset base of NPR 93,323 million as of mid-July 2019. As on the same date, SCBNL’s CRAR was 19.90% and gross NPLs were 0.15%. In terms of the technology platform, SCBNL uses global technology platforms of the Standard Chartered Group, across all its branches.

Source: ICRA Nepal