Moody’s to review Cambodia’s banks for downgrades

Friday, 20 April 2012
Don Weinland
The Phnom Penh Post

Moody’s Investor Services will review ACLEDA Bank and Cambodian Public Bank (Campu Bank) for potential downgrades, according to a release from the rating agency on Wednesday.

But the move comes primarily as a response to the global financial crisis and the rating agency’s attempt to realign sovereign ratings with that of banks, an official at Moody’s said.

The reviews and potential downgrades could be the final rating action in response to Moody’s policy change, Singapore-based analyst Christian de Guzman said by email yesterday.

Moody’s will review ACLEDA’s and Campu’s “bank financial strength rating”, both of which stand at a D, according to a statement issued late on Tuesday.

ACLEDA’s “local currency long-term deposit and issuer rating”, now at a Ba2 rating, will also be up for review.

Banks rated D display modest intrinsic financial strength, potentially requiring some outside support at times, according to Moody’s.

The rating agency views long-term obligations with a B grade as “subject to high credit risk”.

Given continued gross domestic product growth in the Kingdom, which the World Bank and Asian Development Bank projecting 6.5 per cent year-on-year growth in 2012, the potential downgrades were unexpected, Campu country head Phan Ying Tong said.

“Sometimes we feel surprised. If [Moody's] policy continues to change, then it will continue to affect our banks.”

Campu’s financial strength rating was once higher than Cambodia’s sovereign rating, Phan Ying Tong said.

Moody’s realignment process has seen the bank’s rating fall.

Cambodia’s sovereign rating was well-positioned at B2, so the current rating review would probably be the last brought on by policy change, Moody’s de Guzman said.

Downgrades resulting from the policy change were “essentially a one-off exercise that seeks to apply some of the lessons learned since the start of the Global Financial Crisis”, he said.

The global financial crisis brought with it new insight on the connection between a country’s credit standing and that of banks within the country, according to a Moody’s credit policy report issued in mid-February.

“The transmission of credit risk from a sovereign to other issuers domiciled in that country has become increasingly evident during the financial crisis that began in 2008, and has become most acute more recently during the European sovereign crisis,” the report stated.

The implementation of new guidelines could result in downgrades, primarily for banks that fall outside Moody’s new policy.

Standard & Poor’s and Moody’s downgraded ACLEDA late last year, the Post reported, and Moody’s changed its outlook on Campu’s bank financial strength rating to “negative” in September.