S&P Gives Credit Rating to Cambodia Bank

Thursday January 10, 3:21 am ET
By Ker Munthit, Associated Press Writer

Standard & Poor's Gives First Credit Rating to Cambodian Micro-Credit Bank

PHNOM PENH, Cambodia (AP) -- Standard & Poor's gave its first credit rating to a Cambodian bank Thursday, saying the country's banking industry is poised to benefit from strong growth but is still fragmented and lacks financial depth.

The rating agency also said it has decided to categorize Cambodia's banking industry in terms of risk assessment in the tenth and lowest group, on par with Bolivia, Jamaica, Ukraine and Venezuela.

It assigned Acleda Bank Plc., Cambodia's third-largest bank, a B+/B credit rating. B+ is four levels below investment grade.

"The rating on Acleda reflects the bank's adequate balance sheet strength and satisfactory asset quality, although these strengths are partially offset by the underdeveloped operating environment and poor legal infrastructure in Cambodia," Ivan Tan, Standard & Poor's credit analyst, said in a statement.

Acleda, the country's largest micro-creditor, has the country's largest network with 176 branches, mainly in the rural areas.

The bank's reported asset quality and profitability are good, "underpinned by its healthy interest margins of 19.9 percent in August 2007," the statement said.

But it added an upgrade of rating for the bank will hinge upon its ability to maintain good asset quality along with stabilization of its loan portfolio, and an upgrade in Cambodia's sovereign rating, also B+.

In a separate statement, S&P said it has put Cambodia's banking sector in the tenth and lowest group on its Banking Industry Country Risk Assessment scale. The scale classifies countries into 10 groups, with the strongest banking systems in Group One.

The Cambodian banking system remains "fragmented and lacks financial depth with poor access to credit," despite good economic prospects and political stability, it said.

"There are a wide variety of structural distortions that prevent the optimization of financial intermediation by banks in Cambodia," it said, adding that deficiencies include inadequate legal framework for secured transactions, developing institutional framework and poor disclosure standards.

"As Cambodia transitions to a market economy and credit growth picks up, its main challenge is to rectify these deficiencies," S&P said.