September 2, 2011

Major bank downgrade


Moody's Investors Service announced yesterday  it had downgraded the credit rating of ACLEDA Bank, citing the departure of two of  the bank’s major investors in as many years.

The loss of a second big sharehol-der in the first half of this year had led to Moody’s cutting the bank’s local-currency long-term deposit and debt issuer ratings from Ba1 to Ba2, Christine Kuo, a Moody’s vice-president and senior credit officer, said in a statement yesterday.

Moody’s defines banks with Ba-grade ratings as being speculative and “subject to high credit risk”.

“The one-notch rating uplift from shareholder support, previously incorporated in ACLEDA Bank’s ratings, is no longer appropriate given that two of its major shareholders have now divested their stakes of 12.25 per cent each,” Kuo said in the statement.

ACLEDA Bank’s other ratings were unchanged and continued to have a stable outlook, she added.

European development financial institution Deutsche Investitions-und Entwicklungsgesellschaft sold its stake earlier this year. Netherlands Development Finance Company, the international development bank of the Netherlands, divested its share in the first half of 2010.

Both are financially backed by their respective governments.

“When Moody’s had originally incorporated shareholder support in ACLEDA’s ratings, all its major shareholders were expected to remain unchanged, but these divestments have significantly weakened our assumptions of long-term commitment from its shareholders,” Kuo said.

Although further divestments by other shareholders would not affect its ratings in the future, the updated rating reflected ACLEDA’s increasing risk profile, the result of rapid credit growth and its moderating capital strength, and challenges associated with the bank’s operating environment, she said.

“It’s takes into account the narrow economic base, poor infrastructure and transparency, and the presence of corruption,” Kuo told the Post yesterday. ACLEDA Bank officials expressed disappointment at the decision, but said the downgrading had come as no real surprise.

Moody’s initially informed the bank that the withdrawal of shareholders would be negatively perceived in 2004, as the European-government backed shareholders were significant in the issuance of the original Ba1 rating, ACLEDA vice-chairman John Brinsden said. “Now the up-ticks have been removed, we are being treated like an ordinary joint-stock bank.”

Although Moody’s perceives the departure of major shareholders in financial terms, the introduction of new major investors is key to the bank’s new strategic direction, according to Brinsden. “The acquisition of the new shareholders is part of our strategic plan to head in a more commercial direction, and they will help us to achieve this.”     

The incumbent investors comprise COFIBRED SA, a subsidiary of French cooperative bank Banque Populaire, and JSH Asian Holdings Limited, a member of the Jardine Matheson Group. ACLEDA Vice Chairman John Brinsden serves as an adviser to Jardine Matheson in Cambodia.

ACLEDA chairman In Channy believes that as only the local-currency rating was downgraded, the decision by Moody’s will have little impact on banking transactions.

“As the industry is dominated by the dollar, only 9.8 percent of our liabilities are in riel, which is not rating sensitive, as customers who deposit in riel do not follow credit ratings,” he said, adding only 11 of the Kingdom’s 29 commercial banks currently accept deposits in riel.

Moody’s also raised doubts over the sector’s rapid growth and the capabilities of banking firms to keep up, however, In Channy reaffirmed ACLEDA’s stability. “We have a full human-resource network, electronic banking and all other requirements to cope with the growth and manage potential risk.”


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