OREANDA-NEWS. Fitch Ratings has today downgraded Standard Chartered Bank (Taiwan) Limited's (SCBTL) Long-Term Issuer Default Rating (IDRs) to 'A+' from 'AA-' and Short-Term IDR to 'F1' from 'F1+'. The Outlook on the Long-Term IDR remains Negative.

At the same time, the agency has affirmed the bank's National Long-Term Rating at 'AAA(twn)' and revised the Outlook to Negative from Stable. The Viability Rating is affirmed at 'bbb'. A full list of rating actions is at the end of this rating action commentary.

The rating actions follow Fitch's downgrade of the IDRs on SCBTL's ultimate parent, Standard Chartered PLC (SC) to 'A+' with Negative Outlook on 5 November 2015 (see "Fitch Downgrades Standard Chartered to 'A+', Maintains Negative Outlook", at www.fitchratings.com).

KEY RATING DRIVERS
IDRS, NATIONAL RATINGS AND SENIOR DEBT
SCBTL's IDR and Outlook remain aligned with those of its parent, and the IDR has been downgraded in line with the rating action on SC. Fitch views SCBTL as a core subsidiary within the group's international network, specifically its role in the group's greater China strategy. This is underpinned by their aligned risk management, a shared brand name and global network.

The bank's National Long-Term Rating is affirmed as its 'AAA(twn)' rating is still commensurate with the 'A+' IDR; the Outlook is revised to Negative from Stable, in line with the parent's Outlook.

The senior unsecured bonds are rated at the same level as SCBTL's National Long-Term Rating and accordingly affirmed. The bond rating reflects the relative vulnerability of default on its senior obligations within a national scale for Taiwan.

VIABILITY RATING
The affirmation of SCBTL's VR reflects its stable balance-sheet strength, mainly because Fitch expects capitalisation to continue to be enhanced through a selective growth strategy, despite modest profitability. At the same time, Fitch believes the bank's asset-quality risk is manageable, backed by adequate collateralisation of its mortgage portfolio (57% of total loans at end-1H15) and reasonable quality of its moderate exposure to China. The VR also factors in ordinary support extended by SC, including liquidity support and consulting service for operations.

SUPPORT RATING
The Support Rating (SR) of '1' on SCBTL is based on Fitch's continuing belief of an extremely high probability of support from SC, if needed.

SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
SCTBL's Basel II-compliant Tier 2 bonds (B2T2) are rated one notch below its National Long-Term Rating to reflect their subordinated status and the absence of going concern loss-absorption features.

Fitch has downgraded the rating on the bank's Basel III-compliant Tier 2 bonds (B3T2) to 'AA(twn)' from 'AA+(twn)' because rating compression no longer applies after SCBTL's IDR is downgraded to 'A+', which is the same as Taiwan's sovereign rating.

SCBTL's B3T2 bonds are rated two notches below its National Long-Term Rating, comprising zero notches for non-performance risk and two for loss severity, reflecting the limited recovery prospects for Taiwanese B3T2 notes at the point of non-viability (PONV) or government receivership. This is in contrast to the typical one notch for standard B3T2, which reach the PONV at regulatory decisions to write-off securities or inject public sector capital. Fitch believes Taiwan's authorities would only move a bank into insolvency administration when it reaches a very low level of capital, reducing the recovery prospects for B3T2 notes.

The anchor rating for SCBTL's Tier 2 bonds is the support-driven National Long-Term Rating or equivalent to the parent's VR, rather than SCBTL's VR, as Fitch believes the parent has a strong interest in supporting its subsidiary to fulfil its debt obligations.

These aforementioned notching practices for Tier 2 bonds are in accordance with Fitch's criteria on rating the regulatory capital of financial institutions.

RATING SENSITIVITIES
IDRS, NATIONAL RATINGS AND SENIOR DEBT
A downgrade of SC's ratings could trigger a similar rating action on SCBTL's IDR, National Long-Term Rating and senior unsecured debt rating.

VIABILITY RATING
SCBTL's VR may be upgraded if the bank demonstrates improvement in its local franchise, business execution, asset quality and profitability while maintaining sound risk appetite. The VR may be downgraded if a sharp correction in the property market were to cause severe mortgage losses or if the risk profile materially weakens from aggressive growth in better-yielding exposures, such as SME or China-related lending.

SUPPORT RATING
The SR is sensitive to any change in the ability and propensity of SC to provide timely support to SCBTL and is unlikely to be downgraded even if SC is downgraded.

SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
A downgrade of SCBTL's IDR and National Long-Term Rating could trigger a similar rating action on the B2T2 and B3T2 bond ratings.

The rating actions are as follows:

- Long-Term IDR downgraded to 'A+' from 'AA-'; Negative Outlook
- Short-Term IDR downgraded to 'F1' from 'F1+'
- National Long-Term Rating affirmed at 'AAA(twn)'; Outlook revised to Negative
- National Short-Term Rating affirmed at 'F1+(twn)'
- Viability Rating affirmed at 'bbb'
- Support Rating affirmed at '1'
- Senior unsecured debt National Long-Term Rating affirmed at 'AAA(twn)'
- Basel II-compliant Tier 2 bonds National Long-Term Rating affirmed at 'AA+(twn)
- Basel III-compliant Tier 2 bonds National Long-Term Rating downgraded to 'AA(twn)' from 'AA+(twn)'.