Fitch gives ACB "negative' rating after tycoon arrest

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Pedestrians wait to cross the road in front of an Asia Commercial Bank (ACB) branch in Hanoi. Fitch Ratings has affirmed a "negative" outlook for ACB following the arrest of a shareholder tycoon last year. Photo: Bloomberg

Fitch Ratings has affirmed a "negative" outlook for Vietnam's Asia Commercial Bank (ACB) following the arrest of a shareholder tycoon last year.

The agency released this week the ratings for four Vietnamese major banks, in which it affirmed their Long-Term Issuer Default Ratings (IDRs) at "B".

The outlook is "stable" for the Vietnam Bank for Agriculture and Rural Development (Agribank), Vietnam Joint-Stock Commercial Bank for Industry and Trade (Vietinbank) and the Saigon Thuong Tin Commercial Joint Stock Bank (Sacombank).

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According to Fitch, the negative outlook for ACB reflects a further potential impairment burden on its financial profile from exposure to six companies where Nguyen Duc Kien, the arrested tycoon, was either chairman or a member of the the Board of Management. One of the companies is reportedly under external investigation following Kien's arrest on fraud and other charges in August 2012.

The unreserved amount, equaling a high 54 percent of the bank's core equity, is reportedly covered by collateral and classified in the special mention category, the ratings agency said.

Kien is one of ACB's shareholders. Losses may also arise from ACB's deposit placements at Vietinbank (another 6 percent of core equity), the outcome of which is pending legal proceedings, according to Fitch.

The agency said ACB's outlook may be revised to "˜stable' or its ratings may be further downgraded, depending on Fitch's view on the probability of impairment risks arising from its exposure to companies related to Kien which may become clearer over a longer period - as well as on the operating environment.

Nguyen Thanh Toai, deputy general director of ACB, declined to comment on Fitch's ratings, online newspaper VnExpress reported.

He, however, affirmed that all the debts owed to ACB by the six companies related to Kien were guaranteed.

He said the bank plans to reclaim the money "as soon as possible."

In its 2012 financial report, ACB, Vietnam's largest private lender by assets, said the six companies owed over VND7.1 trillion (US$335.4 million) to the bank.

"˜Economic wrongdoing'

Following Kien's arrest in 2012, the government has pledged to reform the banking sector which experts have said is hamstrung with bad debt, poorly regulated and at possible risk of collapse.

Police said Kien was arrested on charges of "wrongdoings in economic activities."

Last August, police also arrested Ly Xuan Hai, former chief executive of ACB, on charges of "intentional wrongdoings that violated state regulations on economic management, causing serious consequences."

In May, the government said the ratio of non-performing loans (NPLs) held by Vietnam's troubled banks eased slightly in the first quarter as they have become better at controlling bad debt, though the overall level of NPLs remained high, Reuters reported.

By the end of March, NPLs accounted for 4.51 percent of the total loans, according to information declared by the banks themselves, the newswire said, citing a government report.

On May 21, the government approved the formation of an asset management firm, Vietnam Asset Management Corp (VAMC), to buy bad debt from troubled banks.

Vu Viet Ngoan, chairman of the National Financial Supervisory Committee, estimated the VAMC would tackle about VND100 trillion ($4.8 billion) of bad debt.

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