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Fitch Upgrades Asia Commercial Bank to 'B+'; Outlook Stable

Diep Nguyen
BizLIVE - ACB is one of the few Vietnamese banks that has adopted the local Basel II standards. The bank's Fitch Core Capital ratio of 9% at end-September 2019 remained low by global standards and indicates the bank's thin capital buffers. 
Fitch Upgrades Asia Commercial Bank to 'B+'; Outlook Stable
Fitch Ratings has upgraded Vietnam-based Asia Commercial Joint Stock Bank's (ACB) Long-Term Issuer Default Rating (IDR) to 'B+' from 'B' with a Stable Outlook and its Viability Rating to 'b+' from 'b'. The agency also affirmed the rest of ACB's ratings.
ACB's Long-Term IDR is driven by its standalone credit profile, as reflected in its Viability Rating. The rating upgrade takes into account ACB's continued improvement in profitability and internal capital generation, which Fitch expects to be sustained in the near to medium term.
The rating also considers its modest franchise as a mid-sized private bank in Vietnam and predominantly secured loans. This is counterbalanced by recent years of rapid credit growth, whereby asset-quality weakness may manifest in a less benign operating environment.
ACB is one of the few Vietnamese banks that has adopted the local Basel II standards. The bank's Fitch Core Capital ratio of 9% at end-September 2019 remained low by global standards and indicates the bank's thin capital buffers. Nevertheless, the bank's core capital is higher than that of other Fitch-rated banks in Vietnam, and this is likely to improve, supported by rising profitability and better earnings retention via a share dividend scheme.
ACB's operating profit/risk-weighted assets improved to 2.8% for 9M19 - the highest among Fitch-rated banks in Vietnam - from 1.7% in the financial year to end-December 2017 (FY17) and 1.4% in FY16, as credit costs declined and business momentum picked up. This came about despite a much higher risk-weighted asset base following the adoption of Basel II. Fitch expects the bank's profitability to improve further, underpinned by continued robust growth in higher-yielding retail lending and bancassurance.
ACB's reported problem-loan ratio - including special mention loans and loans sold to the Vietnam Asset Management Company - stood at a low 0.9% at end-September 2019. Fitch believes that loan quality from ACB's recent rapid credit growth is untested through credit and interest rate cycles, and the under-reporting of problem loans remains prevalent in the system. However, this is likely to be less of a concern for ACB in light of its balance sheet clean-up. Fitch also expects the benign economy to continue to support the bank's asset quality in the near term.
ACB's funding and liquidity profile remains relatively stable, with loan/deposit ratio of 86% at end-September 2019. Customer deposits accounted for roughly 93% of ACB's funding, with low-cost deposits comprising 17% of total customer deposits and retail clients making up the majority of its depositors - reflecting its retail-centric business model.

DIEP NGUYEN