Fitch revises StanChart Taiwan's outlook to negative to align with parent group

Because of the subsidiary's China strategy role.

Fitch Ratings has revised Standard Chartered Bank (Taiwan) Limited's (SCBTL) Outlook to Negative from Stable and affirmed its Long-Term Issuer Default Rating (IDR) at 'AA-'.

According to a release from Fitch Ratings, the revision follows a similar change in Standard Chartered Bank's (SCB) Outlook on 1 October 2014. SCB is the parent and sole owner of SCBTL.

SCBTL's IDRs and Outlook remain aligned with those of its parent because Fitch views SCBTL as a core subsidiary within the group's international network that plays a role in its greater China strategy. This is underpinned by their aligned risk management, a shared brand name and global network.

Any rating action on SCB could trigger a similar rating action on SCBTL's IDRs. The latter's National Long-Term Rating of 'AAA(twn)' remains on Stable Outlook because it will remain unchanged even if SCBTL is downgraded to 'A+'.

Here's more from Fitch Ratings:

The affirmation of SCBTL's VR at 'bbb' reflects its adequate balance sheet strength relative to its moderate risk profile, stable asset quality, as well as modest earnings performance relative to similarly rated peers.

The latter understates SCBTL's strategic importance in the group because material earnings generated from Taiwanese clients outside of Taiwan are reported elsewhere in the group.

The VR also factors in the ordinary support extended by SCB, including the previously mentioned parent-subsidiary integration.

SCBTL's VR may be upgraded if the bank demonstrates an ability to significantly improve earnings on a sustained basis.

The VR may be downgraded if its mortgage portfolio, which accounts for near 50% of its loan book, comes under pressure from an unexpected and sharp correction of the Taiwan property market.

A weakening risk profile arising from growing exposures to China may also lead to a downgrade of its VR.

SCBTL's Support Rating (SR) of '1' is based on Fitch's continuing belief of an extremely high probability of support from SCB, if needed. The SR will remain unchanged if SCB is downgraded to 'A+'.

SCBTL's senior unsecured bonds are rated at the same level as its National Long-Term Rating because they constitute direct, unconditional, unsecured and unsubordinated obligations of the bank.

Its subordinated bonds are rated one notch below SCBTL's National Long-Term Rating to reflect their subordinated status and the absence of going concern loss-absorption features.

These notching practices are in accordance with Fitch's criteria on rating senior unsecured bond instruments and bank regulatory capital of financial institutions.

SCBTL's senior debt and subordinated debt ratings will remain unchanged as its 'AAA(twn)' National Long-Term Rating will remain unchanged even if SCBTL's is downgraded to 'A+'.