Tuesday, December 6 2011 16:51
Fitch Downgrades Armenia's ACBA Credit Agricole to 'BB-'; Outlook Stable
ArmInfo Fitch Ratings-London/Moscow-05 December 2011: Fitch Ratings has downgraded Armenian ACBA-Credit Agricole Bank's (ACBA) Long-term Issuer Default Rating (IDR) to 'BB-' from 'BB'. The Outlook is Stable. The bank's Viability Rating (VR) has been affirmed at 'b+'. A full list of rating actions is at the end of this comment.
Fitch Ratings reports that the downgrade of ACBA's Long-term IDR reflects the agency's reassessment of the probability of support from its shareholder Credit Agricole S.A. (CA; 'AA- '/RWN). In its assessment, Fitch now places greater emphasis on factors which it had previously identified as constraining the probability of support. These factors include the fact that the Armenian market is not of strategic importance for CA, the minority (28%) stake held by CA, and CA's limited presence in other emerging markets, meaning ACBA's performance, and hypothetical default, would bear little contagion risk for the rest of the group.
At the same time, ACBA's IDRs and Support Rating continue to reflect the limited probability of support from CA, given the brand association, the track record of cooperation with CA and ACBA's small size (and hence potential cost of support). Future revisions of ACBA's IDRs will likely be driven by any changes in Fitch's view of CA's propensity to provide assistance to ACBA in case of need. Any downward revision of Armenia's sovereign rating, implying a higher risk of systemic stress, could also result in a downgrade of ACBA.
Support for ACBA from CA has never been required, or therefore tested, in the past given ACBA's sound financial position. In the normal course of business, CA provides funding facilities to the bank, which accounted for nearly 10% of ACBA's non-equity funding at end-3Q11.
ACBA's VR considers recent rapid growth, increased loan concentrations and still high loan dollarisation (57% of end-Q311 loans), exposing the bank to indirect market risk in case of a national currency devaluation. At the same time, the rating reflects low levels of non-performing loans, sound liquidity and manageable refinancing risks, strong profitability and capitalisation (Basel II total capital ratio of 20.8% at end-Q311) as well as the bank's broad domestic franchise.
Upside potential for the bank's VR is currently limited, although downward pressure could result from a further rise in lending concentrations, or deterioration in capital adequacy ratios as a result of weaker asset quality.
At end-Q311, ACBA was Armenia's largest bank by total assets (nearly 11% of the system's assets) with sizeable market shares of around 50% in agricultural lending and 14% in consumer lending. CA's 28% stake is owned in part directly and in part indirectly; the remainder is distributed among 10 regional agricultural unions.
The rating actions are as follows:
Long-term IDR: downgraded to 'BB-' from 'BB'; Outlook Stable
Short-term IDR: affirmed at 'B'
Viability Rating: affirmed at 'b+'
Individual Rating: affirmed at 'D'
Support Rating: affirmed at '3'
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