MOODY’S Investors Service yesterday announced a change in outlook for Cambodian Public Bank to “negative” from “stable”, citing increasing risks in the Kingdom’s banking system and exposure to slowdowns in Western markets.
While CamPu Bank country head Phan Ying Tong said yesterday the company’s financial position remained strong, one Moody’s analyst reckoned a credit-rating downgrade was likely to follow over the next year and a half.
The change in outlook comes as Cambodia’s financial sector is increasingly at risk from rapid credit growth, Christine Kuo, a Moody’s senior credit officer, said in a report on Monday. Credit in Cambodia’s banking system increased to $3.24 billion in 2010 from $604 million in 2005, according to the report.
Kuo also cited continued exposure to the struggling United States and European Union economies as a reason for changing the outlook on Campu Bank’s D-grade bank financial strength rating to “negative”, she said.
Moody’s describes D-grade institutions as displaying “modest intrinsic financial strength, [and] potentially requiring some outside support at times”.
“The latter events in the developed countries could negatively affect the Cambodian economy and thereby the financial capacity of bank borrowers,” Kuo said, adding Campu Bank was “increasingly exposed to sovereign risk as it deposits its excess liquidity with the central bank”.
However, Moody’s affirmed Campu Bank’s credit ratings at Ba1 for local-currency deposits and issuances, B1 for foreign-currency issuances and B3 for foreign-currency deposits, saying those ratings remain “stable”.
Investors typically use credit ratings from agencies such as Moody’s to measure the risk inherent in buying a particular corporate or sovereign debt issuance.
Moody’s defines banks with B-grade and Ba-grade ratings as being speculative and subject to “high” and “substantial” credit risk, respectively.
Moody’s announcement comes just two weeks after downgrading ACLEDA Bank’s local-currency long-term deposit and debt issuer ratings from Ba1 to Ba2, citing the loss of two major shareholders.
Moody’s sovereign risk analyst Christian De Guzman said yesterday the outlook change indicates a downgrade of Campu Bank’s credit rating is likely as well.
“We have flagged an increased likelihood that Cambodian Public Bank will be downgraded over the next 12 to 18 months,” he said.
Campu Bank’s Phan Ying Tong pushed back against those assertions, though, saying Moody’s outlook change is more a appraisal of the US EU economies. “Whenever the US and EU economies have a problem, Cambodia has one as well because 90 percent of our economy uses US dollars. That’s why they changed our outlook. However, our bank has no problem,” he said.
Campu Bank had a 19-percent market share in deposits and an 18-percent share in loans at end of 2010, according to the Moody’s report, as well as a 3.4-percent non-performing loan ratio.
ANZ Royal Bank CEO Stephen Higgins said the downgrade and outlook change of the two banks were internal issues, claiming that Cambodia is on the upward trend.
“The downgrades of Acleda and Campu were due to issues specific to them rather than being a general Cambodia issue,” Higgins said yesterday. “I don’t foresee a downgrade of Cambodia’s sovereign rating in the near future.”
A sovereign downgrade, he added, would be more of an embarrassment than an economic problem because Cambodia isn’t accessing sovereign debt markets.
Moody’s De Guzman confirmed the Kingdom’s sovereign debt rating remained stable at B2, or five notches below investment grade. “Despite the pressures from rapid credit growth that have contributed to the negative rating actions for the banks, we believe that this poses a large, yet manageable, risk to the government,” he said.
“In addition, the government’s sovereign rating is supported by continued inflows of foreign aid support the government’s fiscal position,” De Guzman said.