Fitch Affirms SCB Asset Management at 'Highest Standards (tha)'
OREANDA-NEWS. Fitch Ratings (Thailand) has affirmed Thailand-based SCB Asset Management Co., Ltd's (SCBAM) National Asset Manager Rating at 'Highest Standards (tha)'. The Outlook is Stable.
KEY RATING DRIVERS
The affirmation is driven by SCBAM's strong asset-management franchise and diversified assets under management, a multi-layer control framework and its committed and financially sound shareholder, Siam Commercial Bank Public Company Limited (SCB; AA(tha)/Stable/F1+(tha)).
SCBAM's rating also reflects its robust investment processes and solid IT systems. However, the asset manager faced persistent management turnovers in 2014-2015 and also some operational issues, particularly from errors in its provident fund registrations in 2015 that have been outsourced to SCB.
SCBAM's 'Highest Standards (tha)' rating is based on the following category scores:
Company: High
Controls: Highest
Investments: High
Operations: Highest
Technology: Highest
Asset Manager Ratings are assigned on a descriptive scale based on Fitch's assessment of the manager's investment and operational platform. Asset managers are rated 'Good Standards', 'High Standards' and 'Highest Standards', relative to the standards applied by institutional investors in the relevant national market. Asset manager operations in the 'Highest Standards' national scale category demonstrate an operational framework that Fitch considers superior relative to domestic institutional standards.
Company: Established in 1992, SCBAM has a well-established franchise in managing mutual, private and provident funds. Run by an experienced management team, SCBAM manages an extensive product range and has the largest assets under management in Thailand, totalling THB1.3trn at end-April 2016. Fitch expects SCBAM's increased institutional focus, particularly for private funds, to further diversify its assets under management in 2016-2017.
The asset manager has strong support from its sole shareholder, SCB. The bank provides functional support for risks, audit, compliance and IT; and a cross-selling platform for SCBAM's retail and expanding institutional business. SCB remains the key distribution point for mutual funds, over 90% of which are sold through SCB's branches.
SCBAM, however, continues to face recurring management turnovers, which tend to undermine overall stability but are mitigated by internal replacements.
Controls: SCBAM's controls are multi-layered, evident from integrated system controls, experienced risk managers and rigorous control processes, including stress tests, counterparty reviews and regular reportings of operational and investment risks. SCBAM's investment risk management is embedded in investment processes and quantified through risk analytics. SCB governs risk policy, participates in SCBAM's risk committee and provides resources for risks, audit and compliance.
Investments: Fitch deems SCBAM's investment process as robust, driven by documented portfolio reviews, in-depth research and a disciplined buy-and-sell process overseen by an investment committee. Staff numbers and experience are consistent with the assets being managed, backed by sufficient analytical resources and clear portfolio-management responsibilities. SCBAM's equity investment process has recently been fine-tuned to better identify sources of performance and increase focus on alpha-generation. A number of investment guidelines, however, were breached in 2015 due to foreign-exchange movements and marking-to-market, but Fitch sees these as passive breaches.
Operations: SCBAM has sufficient operational resources to deal with volume and complexities of trades, portfolios and clients. This is supported by technological resources and a team of experienced and specialised staff. SCBAM also benefits from a high level of system automations. Its communication and reporting to investors are systematic and consistent with regulations and market practice. Fitch expects SCBAM's back-office system to improve further in the near-to medium-term, following a planned upgrade of its capacity and a systematic purging of redundant data from its database. However, the asset manager faces legacy data issues from its provident-fund registrations.
Technology: SCBAM benefits from well-integrated IT systems, marked by regular platform upgrades, a detailed business continuity plan and experienced IT staff. SCB provides dedicated teams to support SCBAM's IT operations and development.
RATING SENSITIVITIES AND SURVEILLANCE
SCBAM's rating is sensitive to major adverse changes to any of its key rating drivers, particularly weakened financial conditions, increased staff turnover or deterioration in processes and policies. A rating downgrade could result if the asset manager significantly deviates from Fitch's guidelines for any key rating driver.
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