Moody’s has downgraded its rating of Standard Chartered amid lower profitability for the emerging markets-focused bank after a period of reducing its risk.
Shares fell by more than 0.5 per cent in morning trading after the downgrade.
The ratings agency moved its rating of Standard Chartered’s long-term deposits and senior unsecured debt from Aa3 to A1, while the senior unsecured debt rating fell from A2 to A1.
Moody’s said Standard Chartered’s targeted return on equity is lower, at eight to 10 per cent, than other banks operating in key Asian markets.
The agency said: “In earning a return on capital below that of its peers, SCB's long-run returns may be insufficient to cover the risks inherent in its key operating markets.”
Improving revenues will be difficult when operating at lower risk levels, Moody’s said, with the bank weighed down by more stable but less punchy returns.
“While profitability will recover from its current very low levels, signs of which were visible in the latest quarter, it will remain materially below the levels seen during 2009-13,” Moody’s said.
The bank is still weighed down by a big book of non-performing loans (NPLs), many of which it took on before the financial crisis, although Moody’s recognised it has been “proactive in NPL recognition”, meaning there is less risk lurking on their balance sheet.
There is also less chance of “one-off items”, the agency said, with diminishing prospects of regulatory fines such as the $300m (£232m) it paid in 2014 because of poor money laundering controls.
Standard Chartered saw its profits almost double in the first quarter of the year after swinging from a loss in the last three months of 2016.
However, the bank also warned competition in its key markets “remains intense”, despite its own efforts to become “more competitive”.
Nevertheless, shares remain almost double their price at the start of January, when fears of a slowdown in China weighed heavily on the lender.