Fitch Revises Asia Commercial Bank’s Outlook to Negative on Coronavirus Risks, Affirms ‘B+’

20 Apr, 2020 13:48

Fitch Ratings has revised the Outlook on Asia Commercial Joint Stock Bank (ACB) to Negative from Stable and affirmed its Long-Term Issuer Default Rating (IDR) of ‘B+’ to reflect the risks that we expect the coronavirus pandemic to exert on the Vietnam-based bank’s credit profile.

The pandemic has strained Vietnam’s economy, with GDP growth slowing to a seven-year low of 3.8% in 1Q20 from 7.0% in 4Q19. Fitch expects Vietnam’s GDP to grow by 3.3% in 2020 and 7.3% in 2021, which assumes that economic recovery will only begin in the later part of 2020. Vietnam’s relatively open economy implies that risks to our base-case forecast are high, especially if external demand continues to be weak and sustained signs of virus containment remain elusive. Vietnam’s high system leverage, reflected in the bank credit-to-GDP ratio rising to 136% by end-2019 from 101% at end-2014, also leaves the country more vulnerable to severe stress in the system.

Consequently, Fitch has lowered Vietnam’s banking system operating environment factor mid-point to ‘b+’ from ‘bb-‘. This is in anticipation of increased credit stress in banks’ loan portfolios and lower profitability due to narrower lending margins and higher credit provisions.Fitch’s expectations for deterioration in bank financial profiles are largely factored into their Viability Ratings (VR), although risks may intensify in the event of economic stress and the shock can have lingering effects for banks’ financial profiles. The outlook for operating environment assessment is maintained at stable as current base-case expectations are for a reasonably strong economic recovery going into 2021.