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Rating Action:

Moody's downgrades Asia Commercial Bank's ratings; places ratings on review for possible downgrade

Global Credit Research - 24 Aug 2012

Singapore, August 24, 2012 -- Moody's Investors Service has today downgraded the issuer ratings and local currency deposit rating of Asia Commercial Bank (ACB) to B2 from B1. The bank's standalone financial strength rating remains at E+, but now maps to a b2 on the long-term scale from a b1. The above ratings, as well as the B2 foreign currency deposit rating have also been placed on review for possible downgrade.

RATINGS RATIONALE

Moody's decision to downgrade and place ACB's ratings on review for possible downgrade follows the negative developments at the bank as a result of (i) this week's police arrest of the bank's co-founder, Mr. Nguyen Duc Kien, a high-profile Vietnamese tycoon, and (ii) the subsequent resignation and arrest of the bank's chief executive officer (CEO), Mr. Ly Xuan Hai.

While the bank has stated that neither of these arrests was related to wrongdoings at ACB itself, Moody's is concerned that these developments have resulted in pressure on the bank's liquidity and that there could be longer-term negative consequences for the bank's franchise value.

So far, these events have led to a fall in the bank's share price and deposits. Although the extent of the decline in deposits cannot be verified, the central bank has confirmed having provided liquidity to ACB for that reason.

The bank entered this period of turbulence with a good liquidity position, but relatively weak capital and declining asset quality. At B1, ACB also had a higher rating than some of its peers in the Vietnamese market, which Moody's believes is no longer justified given the current liquidity pressure and the more difficult environment it is facing to raise capital.

It had reported gross customer loans-to-gross customer deposits ratio of 70% at end-June 2012 (from 72% at end-2011), whereas its liquid assets to total assets stood at 39%.

Tier 1 ratio as at end-June 2012 was 6.6%, below the global peer average.

Non-performing loans (NPLs) ratio continued increasing to 1.5% by end-June 2012 (0.9% at end-2011), while its overall problem loans ratio (including special mention loans) doubled to 2.4% by end-June 2012 (1.2% at end-2011).

Separately, the review for downgrade on the bank's ratings reflects persistent pressure from markets and depositors and the risk that this dynamic could potentially lead to a further deterioration of its credit fundamentals.

Moody's assumes that central bank support has been of an orthodox lender-of-last resort nature. If the rating agency anticipates that the bank needs extraordinary systemic support to avoid default, it is likely that it would again downgrade the stand-alone credit profile and a gap could emerge between the deposit rating and the stand-alone credit assessment.

On the positive side, in a statement published on the SBV's website on Wednesday, Mr. Nguyen Huu Nghia, the bank's chief inspector, said that the SBV would provide protection to ACB depositors going forward, if needed. It reportedly said the entire banking sector is "standing ready to provide funding support to ACB to ensure it meets its obligations for repaying deposits."

PRINCIPAL METHODOLOGIES

The principal methodology used in this rating was Moody's Consolidated Global Bank Rating Methodology published in June 2012. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Headquartered in Ho Chi Minh City, Vietnam, ACB reported total assets of VND254 trillion at the end of June-2012.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

Information sources used to prepare the rating are the following : parties involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Karolyn Seet
Asst Vice President - Analyst
Financial Institutions Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308

Stephen Long
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308

Moody's downgrades Asia Commercial Bank's ratings; places ratings on review for possible downgrade
No Related Data.

 

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