Fitch affirms Vietnam's Asia Commercial Bank; outlook negative
Fitch affirms Vietnam's Asia Commercial Bank; outlook negative
Fitch Ratings has affirmed Vietnam-based Asia Commercial Bank's (ACB) Long-Term Issuer Default Rating (IDR) at 'B' and simultaneously removed them from Rating Watch Negative, on which they were placed on 24 August 2012. The Outlook is Negative. A list of additional rating actions is provided at the end of the commentary.
The Negative Outlook on ACB reflects potential risks which, in addition to challenges surrounding domestic operating conditions, could still weigh on its credit profile in the near- to medium-term. The affirmation of the IDR, driven by the bank's Viability Rating of 'b', reflects the bank's still sounder financial condition than that of most Vietnamese banks but also potential stress on the bank's thin capitalisation, lower profitability and deteriorating asset quality. The bank has been able to preserve its financial profile and has swiftly resumed operations, despite pressures from a series of adverse events that followed the arrest of high-profile personalities relating to the bank and regulatory changes.
The outcome of a police investigation against Mr Nguyen Duc Kien, one of ACB's shareholders and founders, remains pending. Impairment could arise from ACB's loan exposure to companies related to Mr Kien, which reportedly stood at VND7trn (or 54% of equity), although these loans are at present performing and covered by collateral. There is also a dispute on deposit placements of VND0.7trn at Vietinbank.
No provisions have been set aside against these exposures, as these events remain ongoing. A downgrade could arise if impairment risks, possibly from these events and volatile operating conditions, were to become a real threat to the bank's solvency. Conversely, a revision in Outlook to Stable may result from an easing of the current pressures on ACB's financial profile.
Fitch notes that ACB has a liquid balance sheet, with its overall loans/deposits (including gold) ratio of around 72% - one of the lowest in the industry - despite the bank having endured sizable deposit withdrawals. Capitalisation is low, with a regulatory core Tier 1 capital adequacy ratio (CAR) of around 9% at end-2012 (total CAR: 14%). A regulatory requirement for banks to wind down gold positions led to a one-time loss of VND1.7trn in 2012 for ACB, leading to lower profitability. Residual losses are reportedly low as the mismatch in gold positions has mostly been closed.
Positive rating pressures could arise from higher capital levels, while maintaining asset quality,earnings and funding at current levels although this is unlikely in the near term due to the difficult domestic operating conditions.
ACB's Support Rating of '5' reflects Fitch's view of low probability of extraordinary state support in case of need, given the government's limited resources and the bank's low systemic importance relative to major state-owned banks.
ACB is the fifth-largest bank in Vietnam with total assets of VND214trn at end-September 2012. Standard Chartered Bank currently holds a 15% stake in the bank.
ACB's full list of rating actions:
- Long-Term IDR affirmed at 'B'; Outlook Negative
- Short-Term IDR affirmed at 'B'
- Viability Rating affirmed at 'b'
- Support Rating Floor affirmed at 'No Floor'
- Support Rating affirmed at '5'
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