Moody's upgrades Asia Commercial Bank's ratings; changes outlook to stable
Moody's upgrades Asia Commercial Bank's ratings; changes outlook to stable
Moody's Investors Service has upgraded the long-term deposit and issuer ratings of Asia Commercial Bank (ACB) to B2 from B3.
Moody's has also upgraded ACB's baseline credit assessment (BCA) and adjusted BCA to b3 from caa1.
At the same time, Moody's has changed the outlook on the long-term deposit and issuer ratings to stable from positive.
Moody's has also upgraded ACB's long-term counterparty risk assessment (CR Assessment) to B1(cr) from B2(cr). The short-term CR assessment was affirmed at NP(cr)
RATINGS RATIONALE
The upgrade in the BCA and adjusted BCA to b3 from caa1 has been driven by improvements in ACB's standalone credit profile.
Specifically, the bank's asset quality metrics have stabilized as management has pursued a more conservative strategy on loan growth.
While problem loans still account for a large proportion of total assets, the bank has made gradual progress in resolving or writing off its problem exposures.
ACB's problem loans ratio -- which Moody's defines as loans in categories 2 to 5 under Vietnamese accounting standards -- declined slightly to 4.66% at end-June 2015 from 4.75% at end-2014 and down from a high of 7.77% at end-2012.
Some of this improvement in the bank's problem loans ratios is due to the transfer of assets to the Vietnam Asset Management Company (VAMC) .
Accordingly, ACB's net exposure to VAMC bonds increased to 0.9% of assets at end-June 2015 from 0.6% at end-2014. While these transactions are not true sales, ACB will be required to recover or fully write off these exposures over five years.
Moderate loan growth has further reduced the risk that newer loans could deteriorate and materially weaken asset quality. Loan growth was 9% in 2014 and 3% in 2013, significantly below the system averages of [15%] in 2014 and [15%] in 2013.
Profitability has also stabilized, with core revenue growth -- including net interest and fee income -- of 6% in 2014, following a 32% reduction in 2013.
At the same time, return on assets has been stable, but low at 0.5% for 2014 and 2013, as the bank continues to channel a large part of its pre-provision income into its loan loss reserves.
Loan loss provisions accounted for approximately 41% of pre-provision income in 1H 2015.
Moody's continues to incorporate a moderate probability of government support into ACB's B2 deposit and issuer ratings, resulting in a one-notch uplift from the bank's b3 BCA.
Moody's support assumptions are driven by the strong history of government support to the banking sector, in the form of liquidity assistance and regulatory forbearance.
For Vietnamese banks like ACB, the CR Assessment — prior to government support — is positioned one notch above their adjusted BCAs. Moody's then assigns government support assumptions, in line with the same support assumptions on deposits and senior unsecured debt.
Moody's upgraded ACB's long-term CR assessment to B1(cr) from B2(cr) as a result of its one-notch BCA upgrade. The short-term CR assessment was affirmed at NP(cr)
WHAT COULD CHANGE THE RATINGS UP/DOWN
Further improvements in asset quality metrics and recurring profitability could lead to a ratings upgrade, provided that the bank maintains its sound capital buffer and does not substantially increase its risk appetite.
The ratings could be downgraded if the bank's asset quality deteriorates to such an extent that potential credit losses almost fully deplete its loss-absorbing buffers. A significant deterioration in its liquidity metrics could also be negative for the ratings.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks published in March 2015. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
Taking into account today's announcement, the affected ratings are as follows:
Asia Commercial Bank
- The local currency and foreign currency long-term deposit ratings were upgraded to B2 from B3. The outlook was changed to stable from positive
- The local currency and foreign currency long-term issuer ratings were upgraded to B2 from B3. The outlook was changed to stable from positive
- The BCA and Adjusted BCA were upgraded to b3 from caa1
- The long-term counterparty risk assessments was upgraded to B1(cr) from B2(cr). The short-term CR assessment was affirmed at Not-Prime(cr)
- The local currency and foreign currency short-term deposit ratings of Not Prime were affirmed
- The local currency and foreign currency short-term issuer ratings of Not Prime were affirmed
Headquartered in Ho Chi Minh City, Asia Commercial Bank had total assets of VND189,496 billion (around USD8.3 billion) at end-June 2015.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt, this announcement provides certain 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 certain 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 certain 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.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
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.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.
