Moody's upgrades VietinBank and BIDV's ratings

Jul 29th at 23:42

29-07-2014 23:42:57+07:00

Moody's Investors Service has upgraded by one notch the long-term local and foreign currency deposit and issuer ratings of two government-controlled banks in Vietnam, namely Vietnam Bank for Industry and Trade (VietinBank) and the Bank for Investment and Development of Vietnam (BIDV).

At the same time, Moody's has affirmed the Not-Prime short-term issuer and deposit ratings of VietinBank and BIDV, and also affirmed their standalone ratings.

The ratings outlook is stable.

RATINGS RATIONALE

The ratings upgrades reflect Moody's reassessment of systemic support uplift for the deposit ratings of VietinBank and BIDV. The reassessment follows the upgrade of the Government of Vietnam's ratings to B1 from B2 on 29 July 2014, and the upgrade of the sovereign's foreign currency deposit ceiling to B2 from B3.

For more information on today's sovereign upgrade, please see the respective announcement on Vietnam's issuer page at www.moodys.com.

The supported and standalone ratings of the seven Moody's-rated private banks in Vietnam are not affected by the sovereign upgrade, because Moody's incorporates a lower probability of systemic support into the deposit ratings of the private banks, relative to the government-controlled banks.

The full list of affected ratings and outlooks is provided at the end of this press release.

RATIONALE BEHIND THE UPGRADE OF VIETINBANK AND BIDV'S SUPPORTED RATINGS

Moody's upgrade of VietinBank and BIDV's supported ratings is driven by the government's enhanced capacity to provide extraordinary support to these banks in case of need, as reflected by today's upgrade of the sovereign ratings to B1 from B2.

As a result, the deposit ratings of the two government-owned banks are positioned at the respective Vietnam government ratings or ceilings. Moody's considers that VietinBank and BIDV are systemically important for the domestic banking system, with market shares in assets of around 10% each at end-2013.

According to Moody's, Vietnam's stronger capacity to provide systemic support to the large banks is driven by the country's emerging track record of macroeconomic stability, its strengthened balance of payments and the external payments position, and the easing of contingent risks from the banking sector.

Moody's notes that the banking system's liquidity profile has improved, reducing the scale of the interbank market and financial interconnectedness between the banks. As a result, the contingent risks to the sovereign stemming from the banking system have eased somewhat.

Moreover, VietinBank and BIDV are majority owned by the government, which increases the probability of systemic support in case of need, due to reputational considerations. VietinBank is 64.5%-controlled by the government, while BIDV is 95.8%-owned.

MOODY'S AFFIRMS THE STANDALONE RATINGS OF VIETINBANK AND BIDV

Moody's has affirmed the bank financial strength ratings (BFSRs) of VietinBank and BIDV at E+ and E, respectively. The BFSRs map to a baseline credit assessments of b3 for VietinBank, and caa1 for BIDV.

The standalone ratings reflect the banks' vulnerable fundamental credit profiles.

Similar to other rated banks in Vietnam, Moody's considers that the asset quality of VietinBank and BIDV could potentially be understated, due to the weak regulatory and supervisory frameworks in Vietnam. As a result, Moody's points out that the banks' capital buffers could be lower than reported.

RATINGS OF SEVEN PRIVATELY-OWNED BANKS UNAFFECTED BY SOVEREIGN UPGRADE

The deposit ratings of B3 and BFSRs/BCAs of E/caa1 of the seven Moody's-rated privately-owned banks in Vietnam are unaffected by the sovereign upgrade, because Moody's incorporates a lower probability of systemic support into the deposit ratings of the private banks, relative to the government-controlled banks.

The list of these privately-owned banks is provided at the end of this announcement.

WHAT COULD MOVE THE RATINGS UP/DOWN

For any positive rating actions on banks in Vietnam, Moody's will primarily consider any potential improvements in their standalone credit strength.

Moody's will continue to analyze the loss absorption capacity of all the rated banks in Vietnam to identify institutions with higher adjusted Tier 1 capital ratios, lower levels of problem assets, and greater levels of recurring profitability relative to domestic and regional peers.

Moreover, the continuation of the currently benign liquidity situation in Vietnam could also translate into positive rating actions.

Moody's will consider negative rating actions on some Vietnamese banks' ratings if it becomes evident that these banks have avoided default largely as a result of systemic support.

LIST OF AFFECTED RATINGS

VietinBank

- The local currency long-term deposit rating was upgraded to B1 from B2

- The foreign currency long-term deposit rating was upgraded to B2 from B3, and is constrained by the country's B2 foreign currency deposit ceiling

- The local and foreign currency long-term issuer ratings were upgraded to B1 from B2

- The foreign currency senior unsecured ratings were upgraded to B1 from B2

- The bank financial strength rating (BFSR) of E+ was affirmed; BFSR maps to b3 BCA

- The short-term rating of Not Prime was affirmed

-- All ratings have a stable outlook

Headquartered in Hanoi, the bank had total assets of VND576,368 billion (USD27.3 billion) at end-2013.

BIDV

- The local currency long-term deposit rating was upgraded to B1 from B2

- The foreign currency long-term deposit rating was upgraded to B2 from B3, and is constrained by the country's B2 foreign currency deposit ceiling

- The local and foreign currency long-term issuer ratings were upgraded to B1 from B2

- The bank financial strength rating (BFSR) of E was affirmed; BFSR maps to caa1 BCA

- The short-term rating of Not Prime was affirmed

-- All ratings have a stable outlook

Headquartered in Hanoi, the bank had total assets of VND548,386 billion (USD26.0 billion) at end-2013.

LIST OF UNAFFECTED RATINGS

Asia Commercial Bank

- Local currency and foreign currency long-term deposits ratings of B3

- Local currency and foreign currency long-term issuer ratings of B3

- Bank financial strength rating and BCA of E/caa1