Moody's takes positive rating actions on six banks in Vietnam
Moody's takes positive rating actions on six banks in Vietnam
Moody's Investors Service has taken positive rating actions on six banks in Vietnam.
In particular, Moody's upgraded the ratings of Vietnam International Bank (VIB; B2 deposits, E+/b3 BFSR/BCA) by one notch, while affirming the ratings of five banks and changing their outlooks to positive at the same time.
These five banks are:
• Military Commercial Joint Stock Bank (Military Bank; B3 deposits, E/caa1 BFSR/BCA )
• Saigon Thuong Tin Commercial Joint-Stock Bank (Sacombank; B3 deposits, E/caa1 BFSR/BCA)
• Vietnam Technological and Commercial Joint Stock Bank (Techcombank; B3 deposits, E/caa1 BFSR/BCA)
• Asia Commercial Bank (B3 deposits, E/caa1 BFSR/BCA)
• Vietnam Prosperity Jt. Stk. Commercial Bank (VP Bank; B3 deposits, E/caa1 BFSR/BCA)
Moody's also affirmed the ratings of three other banks with stable outlooks:
• Vietnam Bank for Industry and Trade (VietinBank; B1 local currency deposits, E+/b3 BFSR/BCA)
• Bank for Investment and Development of Vietnam (BIDV; B1 local currency deposits, E/caa1 BFSR/BCA)
• Saigon-Hanoi Commercial Joint Stock Bank (SHB; B3 deposits, E/caa1 BFSR/BCA)
Moody's says that its positive rating actions were primarily driven by the stabilization in the operating environment.
Another important factor was the expected improvement in underwriting standards, arising in turn from improved governance and lower risk appetite at some banks.
Together, these factors have reduced the incidence of new problem assets on the banks' balance sheets, and have also improved recovery prospects for legacy problem assets.
Moody's notes that while economic growth has moderated somewhat, Vietnam has managed to stabilize inflation below 7.5%. This achievement has allowed the State Bank of Vietnam (SBV) to decrease its policy rates to promote economic growth; for example, the refinancing rate fell to 6.5% earlier this year from 9% at end-2012.
On balance, lower interest rates are positive for Vietnamese banks because they decrease the debt burden of their borrowers.
Macroeconomic stability has also supported the liquidity profile of the Vietnamese banks. As deposit growth outpaced loan growth, the banking system's loans to deposits ratio improved to 82% in June 2014 from 87% in June 2013.
However, despite the stabilization in the operating environment of the banks and the positive developments related to the banks' credit profiles, Moody's notes that Vietnamese banks continue to face considerable credit challenges that will take time to resolve.
These challenges include problem assets over and above reported non-performing loans (NPLs) and poor loss-absorption capacity due to low loan-loss provisions and weak profitability.
RATIONALE BEHIND THE UPGRADE OF VIETNAM INTERNATIONAL BANK (VIB)
Moody's has upgraded VIB's bank financial strength rating (BFSR) to E+ from E; and the BFSR now maps to a b3 baseline credit assessment (BCA; previously caa1).
Concurrently, Moody's upgraded the bank's deposit rating to B2 from B3, because Moody's retained one notch of systemic support uplift for VIB's ratings. The outlook is stable.
Moody's upgraded VIB's BFSR because the bank has undergone a consolidation and de-leveraging strategy in the past two years, characterized by a reducing loan book and higher provisioning against existing NPLs.
VIB's corporate and risk governance benefits from active support provided by the Commonwealth Bank of Australia (Aa2 deposits, B-/a1 BFSR/BCA), its single biggest shareholder with a 20% stake. The bank has further initiated a more aggressive recovery strategy in an effort to manage its legacy problem assets.
VIB's reported Tier 1 ratio of 16.3% at June 2014 is the highest among the rated banks, indicating a better loss-absorption capacity. VIB has also a very good liquidity position, with cash and government bonds accounting for around 25% of its assets.
RATIONALE BEHIND THE POSITIVE OUTLOOKS ON THE RATINGS OF FIVE BANKS
Moody's has assigned positive outlooks to the BFSR and deposit ratings of five banks: Military Bank, Sacombank, Techcombank, Asia Commercial Bank, and VP Bank.
According to Moody's, the five banks have shown improvements in corporate governance, risk controls, and credit metrics, and these measures have enhanced the banks' ability to benefit from Vietnam's improved operating environment going forward.
Moody's could also upgrade their BFSRs and deposit ratings if their future financial results demonstrate improvements after taking into account the stricter reporting standards introduced by recent SBV regulations, as well as Moody's adjustments of the banks' NPLs.
In addition, Moody's could upgrade the banks' ratings in case of material increases in their Tier 1 ratios, which could in turn strengthen their loss-absorption buffers. Potential capital increases from new shareholders could be particularly beneficial to the banks if these shareholders strengthen risk function and governance structures.
On the other hand, Moody's could change their outlooks back to stable if the banks (1) show no improvements in their corporate governance and risk structures, (2) continue to grow at rates substantially above market averages, and this growth is not followed by new capital increases, and (3) are very slow in resolving their legacy problem assets.
RATIONALE BEHIND THE AFFIRMATION OF THREE BANKS' RATINGS WITH STABLE OUTLOOKS
Moody's has affirmed the BFSRs and deposit ratings of three banks, with a stable outlook. These banks are VietinBank, BIDV and SHB.
In the case of VietinBank, its E+ BFSR and b3 BCA are already the highest among the rated Vietnamese banks. As a result, the bank needs to demonstrate greater improvements in governance, asset quality, and liquidity metrics for a potential increase in its BFSR/BCA. The bank's B1 ratings are in line with the B1 ratings of the government of Vietnam.
Moody's affirmed BIDV's ratings because it already has one of the highest deposit ratings in Vietnam, reflecting its scale, government ownership, and important role in the banking system. However, BIDV continues to report one of the lowest Tier 1 ratios among the rated banks, and further improvements in its quantitative metrics would be required for a potential upgrade.
Moody's affirmed SHB's ratings due to ongoing uncertainties related to SHB's merger with Habubank (not rated). Given the extent of Habubank's legacy problem assets and the inherent complexity of bank mergers, Moody's would require the post-merger entity to demonstrate a longer track record of sustainable performance before considering an upgrade.
LIST OF AFFECTED RATINGS
VIB
- The local currency and foreign currency long-term deposit ratings were upgraded to B2 from B3
- The local currency and foreign currency long-term issuer ratings were upgraded to B2 from B3
- The bank financial strength rating was upgraded to E+ from E; the new 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 VND70,437 billion (USD3.3 billion) at end-June 2014.
Asia Commercial Bank
- The local currency and foreign currency long-term deposit ratings of B3 were affirmed
- The local currency and foreign currency long-term issuer ratings of B3 were affirmed
- The bank financial strength rating of E was affirmed; the BFSR maps to caa1 BCA
- The short-term rating of Not Prime was affirmed
- Outlook on all ratings changed to positive from stable
Headquartered in Ho Chi Minh, the bank had total assets of VND177,295 billion (USD8 billion) at end-June 2014.
Military Bank
- The local currency and foreign currency long-term deposit ratings of B3 were affirmed
- The local currency and foreign currency long-term issuer ratings of B3 were affirmed
- The bank financial strength rating of E was affirmed; the BFSR maps to caa1 BCA
- The short-term rating of Not Prime was affirmed
- Outlook on all ratings changed to positive from stable
Headquartered in Hanoi, the bank had total assets of VND180,381 billion (USD9 billion) at end-2013.
Sacombank
- The local currency and foreign currency long-term deposit ratings of B3 were affirmed
- The local currency and foreign currency long-term issuer ratings of B3 were affirmed
- The bank financial strength rating of E was affirmed; the BFSR maps to caa1 BCA
- The short-term rating of Not Prime was affirmed
- Outlook on all ratings changed to positive from stable
Headquartered in Ho Chi Minh City, the bank had total assets of VND161,378 billion (USD8 billion) at end-2013.
Techcombank
- The local currency and foreign currency long-term deposit ratings of B3 were affirmed
- The local currency and foreign currency long-term issuer ratings of B3 were affirmed
- The bank financial strength rating of E was affirmed; the BFSR maps to caa1 BCA
- The short-term rating of Not Prime was affirmed
- Outlook on all ratings changed to positive from stable
Headquartered in Hanoi, the bank had total assets of VND158,897 billion (USD8 billion) at end-2013.
VP Bank
- The local currency and foreign currency long-term deposit ratings of B3 were affirmed
- The local currency and foreign currency long-term issuer ratings of B3 were affirmed
- The bank financial strength rating of E was affirmed; the BFSR maps to caa1 BCA
- The short-term rating of Not Prime was affirmed
- Outlook on all ratings changed to positive from stable
Headquartered in Hanoi, the bank had total assets of VND135,137 billion (USD6 billion) at end-June 2014.
VietinBank
- The local currency long-term deposit rating of B1 was affirmed
- The foreign currency long-term deposit rating of B2 was affirmed
- The local currency and the foreign currency long-term issuer ratings of B1 were affirmed
- The foreign currency senior unsecured rating of B1 was affirmed
- The bank financial strength rating of E+ was affirmed; the 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 VND597,636 billion (USD28 billion) at end-June 2014.
BIDV
- The local currency long-term deposit rating of B1 was affirmed
- The foreign currency long-term deposit rating of B2 was affirmed
- The local currency and the foreign currency long-term issuer ratings of B1 were affirmed
- The bank financial strength rating of E was affirmed; the 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 billion) at end-2013.
SHB
- The local currency and foreign currency long-term deposit ratings of B3 were affirmed
- The local currency and foreign currency long-term issuer ratings of B3 were affirmed
- The bank financial strength rating of E was affirmed; the 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 VND140,539 billion (USD7 billion) at end-June 2014.
moody's
