Moody's upgrades ratings of Techcombank to B2 from B3
Moody's upgrades ratings of Techcombank to B2 from B3
Moody's Investors Service has upgraded the long-term deposit and issuer ratings of Vietnam Technological and Commercial Joint Stock Bank (Techcombank) to B2 from B3. At the same time, the bank's baseline credit assessment (BCA) was also upgraded to b3 from caa1.
The outlook on the ratings is stable.
The full list of affected ratings can be found at the end of this press-release.
RATINGS RATIONALE
RATIONALE BEHIND THE UPGRADE OF THE RATINGS AND BCA
The upgrade of Techcombank's deposit and issuer ratings to B2 from B3 reflects the improvements in the standalone credit profile of the bank, as reflected by the upgrade of the BCA to b3.
Techcombank's asset quality metrics have improved in 2014 and the first half of 2015, although from a relatively weak base. The improvements in asset quality were driven by write-offs, recoveries, and some credit growth.
In particular, assets which we consider as problematic, such as loans in categories from 2 to 5 under Vietnamese accounting rules, as well as bonds issued by the Vietnam Asset Management Company (VAMC) and some receivables, decreased to 12.8% of gross loans (as if VAMC bonds and other receivables were classified as loans) as of June 2015, from 14.4% in Dec 2014 and 20.1% in Dec 2013. We note that Techcombank's public disclosure around asset quality metrics is better than its domestic rated peers.
The bank's balance sheet contraction -- namely in available for sale securities -- lead to an improved equity-to-assets ratio of 9.1% as of June 2015, from 8.5% in December 2014. During the same period, the bank's tangible common equity-to-risk weighted assets (as adjusted by Moody's for 100% risk weighting on government securities) improved to 10.1% from 9.2%.
Techcombank's profitability remains moderate, with a return on average assets of 0.9% in the first half of 2015 (annualized). Profitability is pressured by high loan-loss reserves that are negatively affecting the bottom-line results. However, we view as positive that the bank channeled around 60%-70% of its pre-provision income into reserves in 2014 and the first half of 2015: these provisions were made against loans, VAMC and receivables.
We also view as positive that the bank is not materially reliant on market sources for funding: its ratio of market funds to banking assets amounted to 14% as of June 2015. As of the same date, liquid assets such as cash, interbank, government bonds and trading securities amounted to 36% of assets. These liquid assets were of relatively good quality, because government securities made up around one-third of the balance.
Moody's continues to incorporate a moderate probability of government support into Techcombank's B2 ratings, resulting in a one-notch uplift from the bank's b3 BCA. Moody's support assumptions are driven by the strong history of government support to the banking sector, in the form of liquidity assistance and regulatory forbearance, as well as Techcombank's moderate systemic importance derived from its 3.5% market share in system deposits in 2014.
For Techcombank, the CR Assessment — prior to government support — is positioned one notch above the adjusted BCA. Moody's then assigns government support assumptions, in line with the same support assumptions for deposits and senior unsecured debt.
Moody's upgraded Techcombank's long-term CR assessment to B1(cr) from B2(cr) as a result of its one-notch BCA upgrade. The bank's short-term CR assessment was affirmed at NP(cr).
WHAT COULD CHANGE THE RATINGS UP/DOWN
Material improvements in asset quality, profitability and capital adequacy could lead to a ratings upgrade. The ratings could be downgraded or the outlook revised to negative if asset quality deteriorates to such an extent that potential credit losses almost fully deplete its loss-absorbing buffers. A significant deterioration in its liquidity metrics could also be negative for the ratings.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks published in March 2015. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
Taking into account today's announcement, the affected ratings are as follows:
Vietnam Technological and Commercial Joint Stock Bank
- The local currency and foreign currency long-term deposit ratings were upgraded to B2 from B3; Outlook was changed to stable from positive
- The local currency and foreign currency long-term issuer ratings were upgraded to B2 from B3; Outlook was changed to stable from positive
- The BCA and Adjusted BCA were upgraded to b3 from caa1
- The long-term counterparty risk assessments was upgraded to B1(cr) from B2(cr). The short-term counterparty risk assessment was affirmed at NP(cr)
- The local currency and foreign currency short-term deposit ratings were affirmed at NP
- The local currency and foreign currency short-term issuer ratings were affirmed at NP
Headquartered in Hanoi, the capital city of Vietnam, Vietnam Technological and Commercial Joint Stock Bank had total assets of VND173 billion (around USD7.7 billion) at end-June 2015.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.
