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20090803.acb_co - Credit Opinion Asia Commercial Bank...

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Credit Opinion: Asia Commercial Bank Global Credit Research - 03 Aug 2009 Ho Chi Minh, Vietnam Ratings Category Moody's Rating Outlook Stable(m) Bank Deposits -Fgn Curr B1/NP Bank Deposits -Dom Curr Ba2/NP Bank Financial Strength D Issuer Rating Ba2 ST Issuer Rating NP Contacts Analyst Phone Karolyn C. Seet/Singapore 65.6398.8303 Christine S. Kuo/Singapore 65.6398.8324 Jerry Chien/Hong Kong 852.2916.1106 Simon Chen/Singapore 65.6398.8330 Key Indicators Asia Commercial Bank [1] 2008 2007 2006 2005 2004 Avg. Total Assets (US$ Millions) 6024.38 5245.51 2677.19 1526.12 976.66 [2] 55.07 Total Assets (VND Billions) 105306.1385391.6844650.1024272.8615419.53 [2] 57.53 Shareholders' Equity (VND Billion) 7766.47 6257.85 1696.43 1283.21 710.00 [2] 69.06 NPL % (Shareholders' Equity + Loan Loss Reserves) 8.85 1.53 10.80 11.95 6.61 7.95 Overhead Ratio 37.53 26.64 38.85 42.09 38.24 36.67 Shareholders' Equity % Total Assets 7.38 7.33 3.80 5.29 4.60 5.68 Recurring Earnings Power 2.78 3.41 2.11 2.00 2.24 2.51 Liquid Assets % Total Assets 47.20 50.41 49.01 44.90 37.31 45.77 NPL % Gross Loans 2.03 0.31 1.11 1.66 0.73 1.17 [1] As of December 31. [2] Compound annual growth rate. Opinion SUMMARY RATING RATIONALE Moody's assigns a bank financial strength rating (BFSR) of D to Asia Commercial Bank (ACB), which translates into a baseline credit assessment of Ba2. The rating derives from the bank's strong profitability, excellent asset quality, good efficiency and strong liquidity. It also takes into consideration ACB's disciplined credit approval and monitoring process, progressive risk management and controls, as well as the benefits of skills transfers from its shareholder, Standard Chartered Bank (SCB). Moody's believes the probability of government support for ACB is very high, which results in a one notch lift in its local currency deposit ratings to Ba1/Non-Prime from the Ba2 baseline credit assessment. Thus the deposit ratings of ACB incorporate two main elements: (1) the bank's BFSR of D; and (2) Moody's assessment of a very high probability of support from the government of Vietnam (a component of joint default analysis, referred to as JDA). Credit Strengths - ACB's growth potential is supported by the strong prospects for Vietnam's private sector - Progressive risk management controls - Good credit fundamentals - strong profitability and liquidity, as well as good asset quality and efficiency
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- Skills transfers from shareholder SCB Credit Challenges - Aggressive lending practices may increase risk for future asset quality - Maintaining and/or increasing capital ratio to provide a larger cushion to absorb losses - High market risk appetite - Weak legal system and volatile operating environment - Risk to future earnings from Vietnam's WTO entry due to increased foreign competition Rating Outlook The outlook for all ratings is stable, except for the foreign currency deposit rating which carries a negative outlook in line with the sovereign outlook. On 3 August 2009, Moody's downgraded the local currency deposit and issuer ratings of ACB to Ba2 from Ba1 (please refer to the related press release on 3 August 2009). The rating action concludes the review initiated on 27 May 2009, when Moody's placed the deposit and issuer ratings of ACB on review for possible downgrade.
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