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Investing.com -- Fitch Ratings has changed the outlook for The Shanghai Commercial & Savings Bank, Ltd. (SCSB) to negative from stable, while affirming its Long-Term Issuer Default Rating at ’A-’ and National Long-Term Rating at ’AA(twn)’.
The rating agency also affirmed the Taiwan-based bank’s Viability Rating at ’a-’. The negative outlook stems from rising pressure on SCSB’s asset quality and profitability, primarily due to deteriorating property-related loan quality and increasing loan write-offs in its Hong Kong subsidiary, Shanghai Commercial Bank Limited (SCB).
SCSB’s impaired loan ratio increased to 3.1% in 1Q25, up from 1.6% at the end of 2024. Fitch expects this ratio to remain elevated through 2025-2026 due to continued real-estate market pressures affecting NPL resolution at SCB.
The bank’s operating profit to risk-weighted asset ratio fell to 1.1% in 2024 and 1.4% in 2023, mainly due to high credit costs at SCB. Fitch forecasts this ratio to recover toward 1.6% in 2025, though headroom will remain limited at the current score.
Despite these challenges, Fitch believes SCSB has sufficient buffer against pressure from US tariff hikes. The agency cited growing global demand for Taiwan’s semiconductor and AI-related products, along with Taiwan’s leading position in these sectors, as factors that will help mitigate pressure from higher tariffs.
SCSB serves Taiwan-based SMEs through SCB in Hong Kong and its Chinese partner Bank of Shanghai, which is 3.0%-owned by SCB. SCSB holds 57.6% of SCB, with loans at the parent accounting for over 70% of the group’s total loans.
The bank’s Fitch Core Capital ratio increased to 17% by the end of 2024, compared to the sector average of 12.6% and up from 15.7% at the end of 2023. This improvement was driven by currency translation gains from SCB, reversal of prior investment losses from 2022, and weak credit growth.
SCSB maintains a sound core deposit base with a loan-to-deposit ratio of 61% at the end of 1Q25, below the sector average of over 70%.
Fitch indicated that SCSB’s ratings could be downgraded if there is sustained weakening in asset quality and profitability, with the impaired loan ratio remaining well above 2% and operating profit to risk-weighted assets below 1.6% for an extended period. A downgrade of SCB’s Viability Rating could also lead to a downgrade of SCSB’s ratings.
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