กรุงเทพฯ--17 พ.ย.--Standard & Poor's
HONG KONG (Standard & Poor's) Nov. 17, 2015--Standard & Poor's RatingsServices today affirmed the 'BBB+' long-term and 'A-2' short-term issuercredit ratings on AEON Credit Service (Asia) Co. Ltd. (ACSA). The outlook onthe long-term rating is negative. At the same time, we also affirmed the
'cnA+' long-term and 'cnA-1' short-term Greater China regional scale ratingson the company.
"We affirmed the ratings to reflect our expectation that ACSA will remain a"core" subsidiary of AEON Financial Service [AFS] group," said Standard &Poor's credit analyst Chris Lee. "The ratings on the company continue toreflect our assessment of the creditworthiness of AFS group. In our base-case
scenario, AFS group's exposure to Japan will continue to dominate its riskprofile and the group will maintain its current creditworthiness, includingits capitalization and overall asset quality."
We recently revised the economic risk trend in our banking industry countryrisk assessment (BICRA) on Japan to negative from stable. This is to reflectour view that Japan's weaker economic recovery than we previously expectedwill constrain the profitability and asset quality of local financial
institutions.
In addition, the developing countries to which AFS is expanding have highereconomic imbalances, weaker private sector debt-servicing capacity, or aweaker payment culture and rule of law than Japan, which is AFS' home countryand largest market. Therefore, such expansion could lead to an increase incredit costs for AFS and lower the group's revenue stability.
In our view, ACSA's very strong capitalization remains a good buffer againstany financial volatility and underpins its stand-alone credit profile of'bbb-'. Nevertheless, the company's high risk business nature and highreliance on wholesale funding counterbalance this strength.
"The negative outlook for the next 24 months mainly reflects our expectationthat ACSA will remain a core member of AFS group. We anticipate that AFS couldface higher economic risk in the local market, given that the majority of itsoperations are in Japan. The outlook also reflects the possibility that thecompany could further expand its business in developing countries whereeconomic risk is much higher than in Japan. Both scenarios could lead tohigher credit costs for the company," said Mr. Lee.
We may downgrade ACSA if AFS group's exposure to developing countriesincreases materially, which could heighten economic risks, weaken assetquality, or strain funding stability. We could also lower the ratings if welower the economic risk score on Japan. In addition, we could also lower therating on ACSA if the performance of AFS group's retail segment, mainly thecredit card business, is worse than we expected, such that it drags down thegroup's overall credit profile. A weakening group status for ACSA would alsotrigger a downgrade. This could happen if the company's growth strategy
diverts from the group's or its importance to the group significantlydiminishes.
We may revise the outlook on ACSA back to stable if we see a higher likelihoodthat AFS group would contain its risk appetite in potentially more volatilemarkets and maintain stable loan quality, and if we revise the economic risktrend in the Japan BICRA to stable.